September 6, 2002
Citigroup Inc. and the Federal Trade Commission are negotiating an agreement under which Citigroup would pay about $200 million to settle charges of predatory lending. It would be the biggest FTC settlement ever.
The Wall Street Journal reported that the talks, while not yet concluded, were progressing and that an agreement might be announced later this month.
The FTC brought charges in March 2001 against Associates First Capital Corp., a Dallas-based subprime lender that was acquired by Citigroup in November 2000 for $27 billion. Citigroup folded Associates into its CitiFinancial lending unit and says it has cleaned up the disputed lending practices.
CitiGroup is known to be eager to settle the case, which has harmed its reputation and given consumer advocates new ammunition against the New York financial giant.
The FTC alleges that Associates used deceptive marketing practices to induce clients to consolidate their debts into home loans that carried unexpectedly high interest rates, costs and fees, and that it also induced borrowers to buy optional insurance which they did not need.
"Predatory lending" is an ill-defined term. It basically refers to taking advantage of so-called "subprime" borrowers -- meaning clients with poor credit ratings.
