WASHINGTON (Reuters) - A top U.S. bank regulator has decided not to fine Citigroup for discriminating against minority mortgage borrowers, dropping the public rebuke that some officials had sought, two people familiar with the matter told Reuters.

FILE PHOTO: The Citigroup Inc (Citi) logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren/File Photo

The decision is sure to be watched by consumer advocates who have questioned whether the Office of the Comptroller of the Currency (OCC) will enforce fair lending rules under the leadership of Joseph Otting, an appointee of President Donald Trump and former banker who has pledged to be friendlier to the industry.

Reuters reported in October that the OCC was mulling sanctions against Citi for failing to give minority customers mortgage discounts that were available to many other borrowers.

Instead of a fine, the OCC issued a warning after Citi assured the regulator it had repaid borrowers and fixed faulty lending policies, the people said this week.

A spokesman for the OCC declined to comment, and a Citi spokesman declined to comment for this story.

In October, Citi told Reuters it believed it had not engaged in discrimination but also said it had reimbursed affected customers and that the third-largest U.S. lender had strengthened internal controls.

The warning from the OCC, known as a “matter requiring attention”, does not entail the monetary penalties or reputational hit that makes public sanctions more effective at discouraging misconduct, said enforcement experts.

“There is no deterrence for banks when abuses are kept secret,” said Eric Halperin, CEO of non-profit Civil Rights Corps and a former Department of Justice official who prosecuted discrimination cases under former President Barack Obama.

“Regulators should bring bad behavior to light.”

Some OCC staff have argued since early 2017 that the faulty mortgage program violated federal law requiring equal treatment for all races, Reuters has reported.

But officials seeking a tough line against Citibank were disappointed. This summer, the Justice Department decided it would not penalize the bank, Reuters reported in October. In recent weeks, the OCC also declined to publicly sanction Citi, sources said.

Citi’s problem sprang from a “relationship pricing” program, common throughout the industry, that gives customers holding large deposits with the bank a preferential mortgage rate.

In 2014, Citi identified “errors” implementing the program, the bank said in October. Sources familiar with the issue said some minority borrowers who qualified for the mortgage rate discount had not received it.

Citi flagged the issue to the OCC, saying the discrepancies were inadvertent and it had taken steps to resolve them. Following a review, OCC staff agreed in early 2017 that the loans were racially skewed and recommended public sanctions, according to the sources.

In recent weeks, a panel of senior OCC officials voted to issue the written warning, the sources said. Although Otting does not sit on that panel, he has the final say on enforcement.

In October, Citi said less than 4 percent of its mortgages were affected by the relationship pricing problem and harmed customers were typically refunded $850.

The bank declined to say exactly how many customers were harmed, but a Reuters estimate based on mortgage lending data provided by Inside Mortgage Finance suggests thousands of qualified borrowers may have missed out on the discounts.