(Reuters) - Citigroup Inc has agreed to change some of its home equity lending practices and let borrowers whose credit lines were suspended or cut to challenge its actions or recover some fees.
The changes are part of a settlement of nationwide litigation on behalf of thousands of borrowers who took out home equity lines of credit, or HELOCs, from the New York-based bank.
According to papers filed on Friday with the U.S. District Court in San Francisco, Citigroup would give borrowers whose HELOCs were suspended or cut because of an alleged significant drop in their homes’ values a chance to reinstate their accounts.
The third-largest U.S. bank would also give each borrower who closed a HELOC after receiving a suspension or reduction notice, and incurred an early closure fee, a chance for a $120 cash payment. It would also expand disclosures in the notices.
Friday’s settlement, which requires court approval, covers borrowers from January 1, 2008 to January 31, 2012 whose HELOC accounts were suspended or reduced. A hearing on preliminary approval is scheduled for September 21.
“Citi is pleased to have this matter resolved,” spokesman Mark Rodgers said.
The bank did not admit wrongdoing in agreeing to settle, court papers show.
Originally filed in January 2009, the lawsuit claimed that Citigroup had begun in early 2008 to send HELOC suspension or reduction notices to borrowers whose homes had supposedly fallen steeply in value.
The lawsuit said this was often not the case and that Citigroup was simply pursuing a “thinly-veiled, unlawful attempt to limit its exposure to the risk of collapse in the United States housing market and to rid itself of below-market interest rate loans.”
Edelson McGuire, the law firm representing the plaintiffs, plans to seek as much as $1.21 million to cover legal fees and expenses. Steven Woodrow, a lawyer with Edelson McGuire who filed the settlement request on Friday, did not immediately respond to requests for comment.
The Citigroup settlement is the latest of several concerning the bank’s practices related to the nation’s housing, credit and financial crises over the last six years.
On Wednesday, Citigroup announced a $590 million settlement of a shareholder lawsuit accusing it of hiding tens of billions of dollars of toxic mortgage assets.
The latest case is In re: Citibank HELOC Reduction Litigation, U.S. District Court, Northern District of California, No. 09-00350.
Reporting by Jonathan Stempel in New York; Editing by Leslie Gevirtz and Dan Grebler