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ACORN CALLS ON FEDERAL REGULATORS
TO REJECT CITIGROUP-ASSOCIATES MERGER
Cites Discriminatory and Predatory Lending Practices By Both Companies
Washington, DC: The Association of Community Organizations for Reform Now (ACORN) is asking federal banking regulators to prohibit the purchase of Associates First Capital, largest consumer lender in the country, by Citigroup, the largest financial services company in the world. In written comments filed today with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Commission (FDIC), ACORN cited abusive lending practices by Associates, such as charging borrowers for unnecessary and expensive credit insurance, and a discriminatory pricing and delivery system by Citigroup, in which Citibank provides quality home loans to select borrowers, but serves lower income and minority communities with much higher cost loans through its subprime affiliates.
“This is the perfect opportunity for the regulators to finally do something more than just talking about the predatory lending problem,” said Maude Hurd, ACORN’s National President. “Will the regulators demand that Citigroup and Associates stop their unethical and harmful practices, or will the regulators again turn a blind eye to the problem and allow our neighborhoods to continue to be ravaged by predatory lenders? The regulators should not just rush into granting permission for this merger,” Hurd continued. “At the very least, they need to take adequate time to consider the community’s views, and to hold a public hearing.”
In its comments, ACORN noted that Associates is currently under investigations by the Federal Trade Commission, the U.S. Department of Justice, and the North Carolina Attorney General’s Office for various illegal lending practices. ACORN urged the banking regulators to withhold approval of the merger until these investigations are completed and changes are made to ensure that any identified predatory practices do not reoccur in the future.
Among Associates predatory practices, ACORN highlighted the problems related to Associates’ high-volume sales of single-premium credit insurance policies in conjunction with the loans it originates. Associates is the fifth largest seller in the country of credit life insurance – insurance which will pay off the borrower’s debt with Associates if the borrower dies. Borrowers are often pressured into buying the credit insurance policies or are even sold the policies without their consent or knowledge. The policies, which are financed into the high-interest loan are extremely profitable for Associates. While group life, health, and accident insurance policies have historically had loss ratios (the ratio of claims paid out to premiums collected) of around 75 percent, Associates has a loss ratio on its credit life insurance policies of below 42 percent.
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“Credit insurance is a giant rip-off for the consumer, but an enormous money-maker for Associates,” ACORN President Maude Hurd stated. “Associates pays out so little of the money they take in, and since credit insurance pays the company which made the loan, rather than the customer, all of the claims paid out by Associates’ insurance policies are paid right back to Associates.”
In addition to Associates’ abusive subprime lending practices, ACORN also cited its serious concern about Associates National Bank, which is based in Delaware and part of the larger Associates corporation. Associates National Bank received a “Needs to Improve” rating in its most recent Community Reinvestment Act (CRA) exam. Less than two-percent of all banks receive a rating lower than “satisfactory.”
ACORN stated that without regulatory action there was no reason to believe that Associates’ practices would be brought up to an acceptable standard after the merger. Citigroup has defended the sale of single-premium credit insurance, and Citibank has concentrated its lending activity in higher-income and predominantly white communities, leaving low and moderate income and minority communities to its subprime lending affiliates and their higher fee, higher interest rate loans that more often contain predatory conditions.
ACORN also pointed out that another Citigroup affiliate, Salomon Smith Barney, has been a major securitizer of subprime loans, and thus far, has refused to adopt standards that would stop it from funding predatory loans. ACORN stated that if Associates becomes part of Citigroup, it would grant Associates much easier access to the capital which Associates needs to carry out its predatory lending.
ACORN (Association of Community Organizations for Reform Now) is a national grassroots membership organization that fights for better schools, jobs, and neighborhoods and works to secure fair access to credit for low-income and minority neighborhoods. Over the last year, ACORN members across the country have been waging a full-scale campaign against predatory lending: releasing studies documenting the impact of predatory lending; confronting predatory lenders directly to improve their practices; exposing Wall Street investment firms which finance predatory loans; pushing state and federal regulators to aggressively investigate lenders and take appropriate actions; holding meetings and workshops to educate the community; and working for legislative change on a local, state, and federal level.
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