By Sneha Shankar - After J.P. Morgan (NYSE:JPM) and Assurant Inc’s (NYSE:AIZ) $300 million settlement last year, now Citigroup (NYSE:C) has been told to pay $110 million in a lawsuit to house owners who were forced to pay expensive property premiums by the bank. The bank has even agreed to refund 8 percent each of force-placed flood or wind insurance premiums even though the bank or its affiliates got no commissions on it.
The lawsuit was filed in a New York federal court according to which the plaintiffs were charged a total of $758 million in hazard insurance premiums and $173 million in flood insurance premium. The filing also states that, one of Citigroup’s insurance receiving units earned a 15 percent commission during the proposed settlement class period.
As stated in the agreement signed between Citigroup and the plaintiffs, the members who were charged this insurance premium will be given back 12.5 percent of the premium by filing a claim. The agreement has asked the bank to stop accepting commissions for force-placed insurance for a period of six years from the effective date of the settlement.
The regulators have been criticizing the banks for such force-placed insurances, which are placed by a bank or mortgage lenders to protect interests in a property if the owner’s insurance lapses. They have also scrutinized the banks for hiking policy prices without proper commission and reinsurance agreements, though the mortgage agreements give lenders the right to force-place insurance.
In August 2012, the Consumer Financial protection bureau had issued mortgage servicing rules to impose such force-based insurance products and to get additional disclosures for adjustable rate mortgages. It had said that the servicer for such force placed insurances would have to give an advance notice and pricing information before charging the customers for it. It had added that the servicer will have to terminate the insurance within 15 days if it receives evidence that the borrower already has the necessary insurance. In this case the insurer would have to refund the force-placed insurance premiums.