Citigroup agrees to $215 million settlement of deceptive lending charges

Thursday, September 19th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ About 2 million consumers who overpaid for mortgages or credit insurance would get $215 million in refunds from Citigroup Inc. under an agreement to settle federal charges of deceptive lending.

The settlement _ the largest in the history of the Federal Trade Commission _ would apply to borrowers who bought credit insurance from Associates First Capital Corp. in connection with mortgages or personal loans between Dec. 1, 1995 and Nov. 30, 2000. Citigroup bought Associates in November 2000.

FTC Chairman Timothy Muris said Thursday that the lending industry ``for too long has been plagued by deception and abuse.''

``The potential harm from this type of conduct _ the loss of someone's life savings or even their home _ is grave,'' Muris said, adding that the FTC is investigating complaints against other lenders.

In mortgage cases, consumers would get refunds averaging $1,000, covering about 60 percent of their losses, Muris said. Personal loans will bring smaller refunds.

Eligible people would receive cash refunds or reduced loan balances. Consumers should expect payment in about 10 months, officials said.

The FTC charged last year that Associates tricked borrowers into buying credit insurance, which covers loan payments when the borrower gets sick or dies, by including it in monthly loan payments without their knowledge. In some cases, high-priced insurance added thousands of dollars to loan costs.

The commission voted 5-0 Thursday for the settlement, which still needs approval from a federal court in Atlanta. But it will not become final until a related settlement in a class action lawsuit in California is approved, the agency said. That settlement would provide another $25 million to consumers.

By settling, Citigroup does not admit breaking any law. The company said it implemented reforms after taking over Associates.

``When we bought Associates, we found certain unacceptable practices that needed to be changed,'' Citigroup president Robert Willumstad said. ``We are confident that today's settlement provides redress to those former Associates customers who were harmed.''

Nancy S. Traves, an accountant from Mentor, Ohio, said her family refinanced a mortgage with Associates in May 1997 to get $15,000 for emergency medical expenses. She declined offers to buy credit insurance, but six months later discovered that Associates had added fees and insurance increasing her mortgage by more than $50,000.

``They are crooks,'' she said. ``They've ruined my credit. I had another stroke because of the stress.''

Traves, 63, said that Associates responded with threats when she complained, including one manager who told her, ``We'll take away your home one way or another.''

A group that represents low-income families called the settlement ``totally inadequate.''

``It's too little to make whole the people who lost money to predatory loans, and too little to make a serious impact on the world's largest banking group,'' said Maude Hurd, president of the Association of Community Organizations for Reform Now.

Associates was one of the nation's largest lenders to high-risk borrowers. Like other similar lenders, Associates charged interest rates much higher than those available to lower-risk consumers.

The FTC said Associates' loans often came with hidden fees making them more expensive than the original debt.

The government complaint said Associates rushed people through the loan closing process, discouraged them from removing credit insurance, used abusive collection tactics and improperly used consumers' credit reports to solicit new customers.

The FTC settlement also requires Citigroup's consumer finances subsidiary, which absorbed the former Associates, to provide annual reports to the government detailing how it sells and markets credit insurance and similar products.

Consumers will receive notices about refunds in a few weeks, the FTC said. Those who have received refunds or have given up their claims in other settlements are not eligible.

Consumers with questions can call the FTC toll-free at 1-877-862-0886.