Bank of America, Citigroup to pay $9 billion for cash-back overdraft business

Bank of American Corp. and Citigroup Inc. have agreed to pay a $9.9 billion penalty to the Federal Reserve and the U.S. Justice Department, the bank’s largest settlement in nearly a decade.

In its notice of proposed settlement, the U: Justice Department said the settlements could reduce the financial risks to financial institutions and consumers that arose from the use of cash back cards.

BofA said it would use the money to help lower the costs of the credit cards, which it also sells to consumers.

Citigroup said it will pay $4.9 million to the U.: Department for Financial Institutions and the Securities and Exchange Commission.

The bank said it expects the penalties to reduce the risk of a financial crisis and will make a $10.3 billion commitment to its customers and to other organizations that support financial stability.

Under the agreement, the banks said, they will also pay an additional $4 billion in penalties to the Justice Department and the Federal Deposit Insurance Corp. for failing to prevent money laundering, which could have led to the criminal charges.

“These settlements resolve allegations of conduct that violated federal law, and they are important steps to restore confidence in our credit card systems and ensure that customers and other stakeholders can continue to enjoy their credit cards,” a Bank of Americans spokesman said.

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(Reporting by Michael Chow; Editing by Jonathan Oatis)