FTC Settles with Citigroup
Regarding "Predatory Lending"

Back in March 2001, the Federal Trade Commission filed a suit against Associates First Capital Corp. in the federal court in Atlanta charging that the subprime lender had engaged in abusive lending practices. In his article in the Wall Street Journal, Paul Beckett reported that among the alleged abuses cited by the FTC were "deceptive marketing practices that induced clients to consolidate their debts into home loans with higher interest rates, costs and fees; inducing borrowers to unknowingly purchase optional credit insurance that would cover monthly payments on the loan if they were seriously injured, and abusive debt collection practices." Prior to its acquisition by the CitiFinancial subsidiary of Citigroup in November 2000, Associates had targeted its marketing to customers with poor credit records. The suit by the FTC involves these pre-acquisition practices of Associates.

On September 19, 2002 the FTC announced a settlement with Citigroup whereby the company will pay $215 million to resolve the charges, plus an additional $25 million as part of a class-action suit settlement. This is the largest consumer protection settlement in FTC history. Proceeds will be distributed to some two million Associates borrowers via cash refunds or reduced loan balances. According to the FTC's press release, $215 million will be paid to consumers who bought credit insurance in connection with loans made by The Associates over a five-year period between December 1, 1995 and November 30, 2000. The class action portion of the settlement will provide an additional $25 million to consumers whose Associates mortgage loans were refinanced, or "flipped", by the Associates during the same time period.

Citigroup president, Robert Willumstad, commented, "We are confident that today's settlement provides redress to those former Associates customers who were harmed." The FTC settlement also requires CitiFinancial to provide annual reports to the Commission detailing its practices with respect to the marketing and sale of credit insurance and other add-on products. In addition, for three years, CitiFinancial must maintain documents relating to the marketing and sale of loans, credit insurance and add-on products.