Company accused of misleading investigators, violating ECOA & HOEPA
By SAM GARCIA
5/27/2004

CitiFinancial has entered into an agreement with the government to settle charges that it violated federal lending requirements and tried to mislead federal examiners.

The Federal Reserve Board issued a consent Order to Cease and Desist and Order of Assessment of Civil Money Penalty against Citigroup Inc. and CitiFinancial Credit Co., according to an announcement today from the government agency.

Citigroup will pay a penalty of $70 million, the Fed said. Restitution payments to subprime borrowers can offset the penalty by as much as $20 million.

In agreeing to the settlement, CitiFinancial said it would stop each of the violations it was charged with.

According to the order, which was executed by Citigroup, CitiFinancial and the Board of Governors of the Federal Reserve System, CitiFinancial was deficient in three areas.

First, the order said the Baltimore-based finance company allegedly failed to comply with the Equal Credit Opportunity Act, or ECOA. In an effort to convert single policies to joint policies and increase insurance sales, CitiFinancial allegedly required the signature of spouses on loan documents even though the applying borrower did not need the spouse to qualify.

Next, CitiFinancial allegedly violated provisions of the Home Ownership and Equity Protection Act, or HOEPA, and Regulation Z. The company allegedly engaged in unsafe and unsound practices in connection with its underwriting and lending practices, according to the order.

Finally, the finance unit allegedly tried to mislead examiners.

The settlement is the result of examinations Citigroup agreed to when it was attempting to gain approval to make prior acquisitions. The examinations covered lending practices during 2000 and 2001.

CitiFinancial will submit an acceptable written plan within 45 days that outlines how it will correct the Regulation Z violations, the order said. Refunds to these customers will include all points, fees and interest charged on those points and fees. In addition, these borrowers will get an interest rate reduction for the remaining life of their loans. The order even said that the security interest will be released.

The company will reportedly refund the difference between a single insurance premium and a joint premium to those borrowers with whom ECOA violations occurred.

The settlement lays out a timeline for various compliance reports to be submitted to the Fed, and requires CitiFinancial to lay out its plans to step up compliance and training.

"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," Citigroup CEO Charles Prince said in a statement today.

In 2001, Citigroup settled for $20 million with the North Carolina attorney general over allegations of predatory lending at Associates First Capital Corp. -- a finance company it acquired in 2000. At issue in that case was the "packing" of single premium credit life insurance on loans without the borrowers' knowledge.

Citigroup entered into the largest settlement ever with the Federal Trade Commission in 2002 -- agreeing to pay $215 million. In that agreement, Associates was charged with engaging in systematic and widespread deceptive and abusive lending practices.

"Significant changes have been made to personnel, policies, procedures and controls," Harry Goff, the chief executive of CitiFinancial, said in the statement.

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