Friday, May 28, 2004

Fed slaps firms with $70M fine over loans

Citigroup, affiliate agree to penalty

By Jeannine Aversa
The Associated Press

WASHINGTON - The Federal Reserve on Thursday announced a $70 million penalty against Citigroup Inc. and a subsidiary regarding practices related to borrowers taking out riskier, higher-interest-rate "subprime" personal and home-mortgage loans.

New York-based Citigroup, the nation's largest financial institution, and its Baltimore-based subsidiary CitiFinancial Credit Co., a consumer finance company, while not admitting to any wrongdoing, agreed to the penalty. They also agreed to ensure compliance with federal lending regulations and to enhance compliance with consumer protection laws.

Restitution could mitigate

The Fed said that the $70 million penalty could be reduced by up to $20 million, depending on the amount of restitution payments made to certain borrowers.

The Fed said restitution shall be made available to borrowers who purchased joint credit insurance in connection with a co-applicant loan from CitiFinancial or any one of its U.S. retail branches from Jan. 1, 2001, through Dec. 31, 2002.

The Fed alleged that CitiFinancial violated federal regulations when it improperly required the signature of a co-applicant on some loans when the creditworthiness of the person taking out the loan was already sufficient.

"These alleged violations occurred in connection with attempts to increase joint insurance sales through an increased volume of co-applicant loans," the Fed said.

The Fed said restitution also shall be made available to certain borrowers whose personal loans from CitiFinancial or its subsidiaries were refinanced by CitiFinancial to a so-called EquityPlus loan.

'Provides closure'

The Fed's action "provides closure to an examination of the U.S. CitiFinancial branch network by the Federal Reserve that began in 2001," said Citigroup chief executive officer Charles Prince in a statement.

"The resolution of this matter is another important step in our continuing effort to address the issues of the past and move forward with standards that define best practices in our business," he added.

Citigroup has been working to appease community groups that have criticized the bank for its 2000 purchase of Associates First Capital Corp., which specialized in loans to high-risk borrowers. Associates has since merged into CitiFinancial.

In September 2002, Citigroup agreed to repay customers $215 million to settle federal charges that Associates manipulated people into buying overpriced mortgages and credit insurance. Some 2 million customers were given refunds or reduced loan balances under the deal with the Federal Trade Commission.

Citigroup admitted no wrongdoing. Separate settlements were reached with several states, including Georgia, North Carolina and California.

And in September, Citigroup announced a $200 billion program to help minorities and low- and moderate-income families buy homes by offering low-down-payment mortgages, reduced closing costs and help for people with bad credit.

Citigroup reported $17.9 billion profit in 2003 on $94.7 billion in revenue.

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