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Citigroup announces changes to loan policies

Updated:
Associates' new parent addresses critics' concerns

By Charlene Oldham / The Dallas Morning News


Citigroup Inc. said Tuesday that it will improve lending practices as part of its buyout of Irving-based Associates First Capital Corp., which community groups call the most predatory of low-income lenders.

The company, in a separate filing to regulators, said it will make sure that borrowers get the lowest interest rates and fees possible; try to eliminate balloon payments and frequent "flipping," or loan refinancing; and set up a review process for loans in foreclosure.

Analysts aren't surprised by the changes.

"A company with Citigroup's reputation wouldn't want to do anything to take away from the focus of the company," said Bryan Paul, a financial services analyst with PNC Advisors in Philadelphia. "They are making these changes so they can focus on the synergies of the merger."

In a letter sent to regulators Tuesday, Citigroup chief executive Sanford Weill said the company is making changes to its CitiFinancial unit – which will absorb the Associates – in an effort to address consumer groups' concerns.

"Today, CitiFinancial is outlining enhancements that will supplement its existing policies and will offer additional consumer protections and benefits to consumers throughout the industry," he wrote the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the New York State Banking Department.

"My colleagues at CitiFinancial and the Associates developed these initiatives following a review of their own policies and products, as well as numerous meetings with many community representatives and legislators to solicit their views."

At least one of the community groups in talks with Citigroup says the proposed changes don't appear to go far enough.

"They spoke to us, but it's not clear how much they heard," said Gordon Mayer, a spokesman for National People's Action, a coalition of community groups based in Chicago.

"It's only in their imaginations that there's a difference between CitiFinancial and the Associates," Mr. Mayer said. "But to us, a sub-prime lender is a sub-prime lender."

Despite intense public interest, New York-based Citigroup expects the acquisition to close by the end of the year.

Citigroup said in September that it would buy the Associates for about $31 billion, replace its name, consolidate some operations and bring lending policies in line with CitiFinancial's.

But the changes announced Tuesday also represent some changes to CitiFinancial's existing lending practices, including:

•A pilot program in Maryland, Missouri, New York and Virginia that will "refer up" loan applicants who could be eligible for prime credit rather than sub-prime credit.

•Adoption of a version of The Associates Freedom Loan, which rewards borrowers who repay on time with more favorable terms.

•A review of compensation packages to make sure they discourage unfair and coercive lending practices. Currently, the Associates – which is named in 700-plus private lawsuits and is under investigation by federal regulators – bases pay on the volume of loans that employees generate.

•Offering operational credit life insurance with a monthly payment option. The Associates offers credit life insurance that's paid for in one lump sum and usually added to the loan balance. Consumer groups have criticized credit life insurance, saying borrowers rarely need or understand it.

•Limiting pre-payment fees on loans to a maximum of three years, down from five years. It also said customers will be offered the choice of a loan with a pre-payment fee and a lower interest rate and one without a pre-payment fee but with a higherrate.

•Creating a team to review foreclosures on loans made by CitiFinancial or the Associates. The financial services firm also will evaluate existing loans with provisions such as balloon payments on a case-by-case basis.
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