Courtesy photo

Compliance staff at Citigroup Inc. received specific instructions on ensuring that the bank fulfills the terms of its $5 million settlement with the U.S. Department of Justice over robo-signing claims in consumer bankruptcy cases involving some 71,000 Macy's credit card accounts.

Citigroup, which self-reported the problem, gave this statement to Corporate Counsel on Tuesday: “In 2015, Citi identified potential issues with the way a vendor was processing bankruptcy proof of claims for the Macy's credit card program. Citi halted the vendor's filings and promptly reported the issue to the Executive Office of the United States Trustee.”

The statement continued, “Citi is pleased to have resolved this legacy issue and regrets any inconvenience to customers. Affected cardholders will receive refunds of $70 per account.”

The settlement said the account holders were parties in bankruptcy cases where robo-signed proofs of claim may have been filed. Robo-signing refers to employees signing documents that have not been read or properly validated.

It's not the bank's first penalty for improperly signing documents. In 2013 Citigroup paid $307 million to compensate borrowers and pledged $487 million more in homeowner assistance as part of a federal settlement with 13 banks over abuses involving robo-signing home foreclosure forms.

In the current case, Citigroup discovered that proofs of claim filed between 2012 and 2015 by employees of a third-party vendor had been robo-signed. FDS Bank, a private bank of Macy's parent, Federated Department Stores, was responsible for account servicing activities and contracted certain bankruptcy-related services to vendors.

According to the settlement, Citigroup learned of the vendor's improper practices after the bank took over servicing the accounts in July 2015, and informed the government in August. The bank and its affiliate were represented by Phoebe Winder, of the Boston office of K&L Gates.

Besides the $70 per account holder remediation payments, this week's deal requires the bank to notify each affected consumer within 120 days.

Then the order listed specific instructions for the bank's compliance assurance unit, which it said operates independent of the line of business. The document said, “Compliance Assurance supports Citigroup Inc.'s compliance and risk functions by independently assessing compliance risks and controls … including by the performance of risk assessments, independent assurance activities such as testing and on-going monitoring, and validation of the adequacy of remediation measures.”

The settlement gives the compliance unit 195 days to:

• Assess the adequacy of the method used to determine which accounts were affected, identify any issues or errors and update the U.S. Trustee Office on steps taken to cure issues or errors. The unit will present its findings to Citigroup to file with the court.
• Inspect a sample of the accounts resulting from Citigroup's search, and assess the accuracy of the search.
• Validate that Citigroup mailed notice and payment for each matched account to the most likely address of the account holder.
• Then within 225 days, the compliance unit must submit its draft findings to the bank, “which will contemporaneously provide a copy” to the U.S. Trustee Office. Citigroup then has 45 days to cure any issues or errors identified by compliance. Compliance will then prepare and submit its final report to the bank, which will provide it to the court.

The settlement still must be approved by the U.S. Bankruptcy Court in the Northern District of Georgia.