Citigroup vows to be more open

Firm acts as it seeks to settle gouging case

September 17, 2002|By BLOOMBERG NEWS

NEW YORK — NEW YORK- Citigroup Inc., facing allegations the former Associates First Capital Corp. gouged unsophisticated borrowers, will give customers more information when they buy credit insurance and cut some fees on home loans.

The world's biggest financial services company will train 11,000 employees in 1,600 branches on how to make sure customers know that credit insurance, which covers home-loan payments in case of death or disability, is optional, according to a memo from Michael S. Knapp, chief executive and president of CitiFinancial, Citigroup's consumer lending arm.

Associates First Capital was merged into Baltimore-based CitiFinancial in 2000.

"The enhancements will provide our customers with information to help them make even better, more informed decisions about insurance protection on their loans," Knapp said in the memo.

The changes come as the New York company is close to settling allegations that Associates First Capital engaged in "predatory lending," charging excessive interest rates and fees for low-income customers.

Citigroup is also under scrutiny by federal and state regulators looking into whether the company misled investors with biased stock research and handed out shares in initial public offerings to favored clients.

Knapp in the memo said the changes came about taking into account the "guidance we have received from regulators, advocacy groups and elected officials"

Citigroup also said it would lower the maximum fee on real-estate secured loans to 3 percentage points from 5 and will provide borrowers with more "customer-friendly" brochures on insurance options.

Associates First Capital had also been accused of pressuring consumers to buy a single-premium form of credit insurance, a product Citigroup last year agreed to stop selling once it obtained state approvals to sell a monthly premium version.

The cost of single-premium insurance was added to the amount of the loan, rather than being paid separately on a monthly schedule. Critics said this raised the debt burden too high, putting borrowers at a higher risk of defaulting and losing equity in their homes.

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