After the Attorney General’s Office launched its investigation, CGMI revised its policies and procedures to address the fee overcharge issues uncovered in the investigation, and as a part of an agreement, CGMI admits the findings of Attorney General Schneiderman’s investigation.
In cooperation with the Attorney General’s investigation, in October 2014 CGMI began reimbursing its customers in full with interest, for the overcharged fees. The agreement also requires CGMI to report fee overcharge issues to the New York Attorney General’s office for the next three years and to pay a penalty of $1 million to the State of New York.
“Our investigation put $22.5 million rightfully back in the hands of customers in New York and across the country,” said Schneiderman. “We appreciate Citi’s cooperation with our investigation and its commitment to ensuring investors are paid back what they are owed – which sets an example for other financial institutions.”
The fee overcharges at issue in the investigation arose 1) when CGMI overcharged some of its customers more than the fees they had negotiated on their managed investment accounts, and 2) when CGMI overcharged customers by failing to rebate certain customers’ accounts after periods of inactivity when fees should not have been charged but were charged. CGMI identified these overcharges as part of an internal review conducted in cooperation with the Attorney General’s investigation.
The investigation began in 2012 after a complaint from a Westchester resident led the Attorney General’s Office to investigate fee overcharge issues at CGMI. The investigation proceeded with CGMI’s cooperation, and will result in the repayment of more than $22.5 million in principal and interest for fees CGMI overcharged to more than 47,000 of its customers. The Attorney General oversaw CGMI’s review and remediation efforts. As part of the agreement resolving the investigation, CGMI will provide the Investor Protection Bureau of the New York Attorney General’s Office, on a quarterly basis for the next three years, a detailed written report on overcharge errors that CGMI discovers in its U.S.-based advisory business.
As a result of the Attorney General’s investigation, CGMI initially identified more than 31,000 customers who were charged higher advisory fees than they negotiated on so-called “TRAK” accounts. Customers with TRAK accounts typically pay a fee for advisory services ranging from 1% to 1.5%. However, the fees were negotiable, and many customers were able to obtain a lower fee than the standard rate. An inquiry into that process, though, determined that many customers were unaware that they were being charged higher-than-negotiated rates.
In an October 22, 2014 interim agreement between CGMI and the Attorney General, CGMI agreed to begin reimbursing its customers for those overcharges while the Attorney General’s Office continued to investigate. CGMI overcharged the more than 31,000 TRAK customers a total of close to $17 million in principal and interest, which CGMI has now substantially repaid to affected customers.
As part of CGMI’s wider review, CGMI discovered it also overcharged another 948 non-TRAK accounts for similar issues and repaid affected customers more than $1 million in principal and interest.
Citi’s continued cooperation and its wider review of customer accounts also identified more than 15,000 additional Citi customer accounts that were overcharged fees during frozen periods—that is, when a CGMI customer’s account was frozen during a period of inactivity. CGMI’s review revealed that thousands of customers who were overcharged fees during frozen periods were not allocated rebates they should have received, either because they did not request a rebate or because CGMI did not have policies and procedures in place to determine when rebates were appropriate. As a result of the Attorney General’s investigation, CGMI will repay more than 15,000 customers for the frozen account fee overcharges a total of more than $4.6 million in principal and interest.
Like this story? Begin each business day with news you need to know! Register now for FREE Daily E-News Broadcast and start YOUR day informed!
Being a leader in today’s equipment finance industry takes a sense of purpose, advocating for oneself and being flexible. Amy Gross, executive vice president of the commercial vendor and government divisions at Key Equipment Finance, says being a parent while... read more
Robert Preville is a serial entrepreneur and investor constantly on the move, having founded and led several high-growth companies in the B2B arena before leading APPROVE, an embedded finance software. Earning this year’s Disruptor Icon award, Preville’s approach to leadership... read more