Sandy Weill's Citigroup may be
suffering buyer's remorse after the
Federal Trade Commission filed a
complaint against it's consumer-
credit unit for "predatory lending."
The embarrassing FTC action
could cost the usually savvy
mega-bank hundreds of millions of
dollars in consumer refunds.
The complaint, the largest predatory lending case ever
brought by the FTC, accused the Citigroup unit of using
deceptive advertsing to lure low-income customers onto a
"treadmill" of high-interest loans.
The complaint follows failed settlement negotiations
between the FTC and Citigroup's CitiFinancial Credit Co.
"We would have preferred to settle so that we could get
money into the hands of consumers more quickly," said
Peggy Twohig, associate director for financial practices
with the FTC.
She declined to comment on what parts of the proposed
settlement caused the snag.
Citigroup also expressed regrets that a settlement could not
Citigroup acquired Associates First Capital Corp. for $31
billion only four months ago and merged it into CitiFinancial
Credit. Citigroup hoped the buy would get its financial teeth
deeper into Asia, where Associates has a presence,
sources familiar with the bank said.
It is Associates' practices in the subprime lending market
that spurred the FTC's investigation. That investigation was
public knowledge at the time of Citigroup's purchase of
Associates First Capital Corp. at that time was the largest
U.S. consumer finance company, lending principally in the
very lucrative subprime market, which consists of
borrowers who can't get credit - usually because of a poor
credit rating or a limited income. This category often
includes the elderly and minorities.
"Typical subprime consumers are people with a high credit
risk but with some equity," Twohig said. "Subprime lending
is not illegal," she added, "but the methods used [in
Associates' case] are."
Those methods allegedly included aggressive solicitations
and misleading and deceptive information that lures
desperate people into loans that have hidden costs and tie
them into a huge payments far into the future.
Since it's purchase in November, Citigroup has enhanced
practices and procedures to resolve those concerns, the
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