Update of May 27, 2002: In light of Citigroup's May 21 announcement of a proposal to acquire Golden State Bancorp and Cal Fed Bank for $5.8 billion, and predatory lending issues that are sure to arise in opposition to Citigroup's applications (see, e.g., the San Francisco Chronicle and Reuters re the proposal), we turn this week to contrasts between the approaches of politicians to Citigroup and another problematic subprime lender, Household International.
Earlier this month, New York state comptroller Carl McCall issues a press release stating that Household's failure "to voluntarily come to terms with those who have been harmed by its business practices has resulted in community action to prompt the court and government officials to review Household's business practices." And last week, the "Boston City Council... asked the city's retirement board to study whether the pension plan should sell off shares of Household International Inc... A recent national class action lawsuit claimed Household routinely overcharged borrowers." Boston Herald, May 23, 2002.
Most community-based advocacy organizations, including ICP, applaud these moves for scrutiny and accountability at Household. But they raise a question: why not Citigroup as well? While both state comptroller McCall and the Boston City Council tied their announcements to litigation against Household, it's well known that Citigroup is being sued for predatory lending by not only private litigants, but also by the U.S. Federal Trade Commission. Mr. McCall's statement about Household's failure "to voluntarily come to terms with those who have been harmed by its business practices" is equally if not more applicable to Citigroup. But, wait, we forgot: Carl McCall used to work at Citibank. And more substantively, Citigroup is significantly more active than Household in giving political campaign contributions.
A routine search of the always-useful Web site FECinfo.com, for "Citigroup," reflects "34 records found in the 02 database," including, simply as examples in March 2002:
--Citigroup giving $85,000 on March 27, 2002, to the Republican National State Elections Committee; Citigroup giving $60,000 on March 22, 2002 to the Democratic DSCC; Citigroup giving $15,000 on March 5, 2002 to the Republican Governors Association Conference; and Citigroup giving $50,000 on March 15, 2002 to the Democratic DCCCC.
By contrast, "Household International" appears in the 02 Database only three times; each of the donations was in 2001 (none in 2002), and all three were to Republicans ($2,000 to NRCCC, June 29, 2001; $15,000 to RNC, April 19, 2001; and $25,000 to NRSC, December 28, 2001).
Another contrast: last week, Household issued a press release trumpeting their hiring of the Pennsylvania banking commissioner James Kauffman as its new " director of compliance for consumer lending." When Citigroup wants to buy perceived government legitimacy it hires ex-Treasury Secretary Robert Rubin, ex-IMFer Stanley Fischer, ex-Secretary of Energy Bill Richardson (temporarily), and the Federal Reserve's money laundering "guru" Richard Small. Citigroup is playing in a different league; while its practices and the scope of litigation against it are as bad if not worse that is true of Household, we have not seen announcements by state comptroller McCall or the Boston City Council against Citigroup. But the issues (summarized below on this page) will be raised in opposition to Citigroup - Golden State. Developing...
Update of May 20, 2002: As Inner City Press' investigation of CitiFinancial continues, we focus this week on how branch managers are compensated. Perhaps most significant is that, despite Citigroup's various claims to have reformed credit insurance abuses, managers' bonuses still ride on "premium per loan" imposed on real estate loans. CitiFinancial has it down to a science: on a quarterly basis, points are awarded in eleven different categories. If a total of sixty points is not reached, no bonus is given.
Twenty points can be gained by "Increas[ing] Personal Loan Net Receivables at End of Prior Quarter by 0.50%." Taking CitiFinancial's "Knoxville - Adair" branch as an example, this branch lodged an increase of 0.42% in the first quarter of 2002; it was awarded 17 of 20 possible points.
Another twenty points can be gained by "Increas[ing] Real Estate Net Receivables at End of Prior Quarter by 1.00%." Again taking the "Knoxville - Adair" branch as an example, this branch lodged an increase of 3.47% in the first quarter of 2002; it was awarded all 20 points.
Imposing credit insurance accounts for fully 30 points, broken down into credit insurance on personal loans, on real estate loans, on "Equity Plus" loans and a category referred to as "Non credit." Source tell ICP this refers to CitiFinancial's "Home and Auto Security Plans" (for which checks are written to American Traveler Motor Club -- $399.95 for 36 months). Branches, Districts, Regions and Divisions are all judged (and compensated) based on how much credit (and non-credit) insurance is sold...
CitiFinancial also closely monitors "Sales Finance Conversions." This is where CitiFinancial provides credit to retailers' customers, then tries to convert the loans into directly personal loans from CitiFinancial, or better yet, real estate loans (on which Citi could foreclose). Examining the March 2002 "Shelf Space" report for CitiFinancial's Nancy Neel (regarding whom we have previously reported), we find that in the first quarter of 2002 under Ms. Neel's watch 110 sale finance accounts were converted, while 49 home equity loans were made. The average size of personal loans was $6,279, approximately 20% of which constituted payments for insurance. Given the way Citigroup compensates its employees, insurance packing should come as no surprise...
We'll close this week with a sample loan, made earlier this year by CitiFinancial's Knoxville-Adair office at 25.33% interest. To borrow $12,316.02, the customer pays $9,518.58 in finance charges, and $1,140.61 for credit disability insurance...
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