Citigroup to Give More Guidance on Loan Coverage

Citigroup Inc., facing allegations the former Associates First Capital Corp. gouged unsophisticated borrowers, said Monday that it will give customers more information when they buy credit insurance and cut some fees on home loans.

The biggest financial services company plans to train 11,000 employees in 1,600 branches to make sure customers know that credit insurance, which covers home loan payments in case of death or disability, is optional, according to a memo from Mike Knapp, chief executive of CitiFinancial, the unit that makes the loans.

The changes come as the New York company is close to settling allegations that Associates, which it bought in November 2000, engaged in predatory lending, charging excessive interest rates and fees for customers with low incomes and histories of unpaid bills. Federal and state regulators also are looking into whether Citigroup misled investors with biased stock research and handed out initial public offering shares to favored clients.

In the memo, Knapp said the changes take into account the “guidance we have received from regulators, advocacy groups and elected officials.”

Citigroup shares, which have fallen 38% this year, rose 50 cents to $29.88 on the New York Stock Exchange.

Citigroup may pay about $200 million to settle Federal Trade Commission allegations concerning Associates. The case included charges that the company didn’t make clear to customers that they were paying extra for credit insurance. The settlement would be the agency’s biggest consumer protection settlement.

Citigroup said it will reduce the maximum upfront fee on home equity and second mortgage loans to 3 percentage points from 5. Salespeople also will quote loan payments without credit insurance before telling borrowers the cost with the insurance and will provide borrowers with more “customer-friendly” brochures on insurance options, the memo said.

Associates also had been accused of pressuring consumers to buy a single-premium form of credit insurance, a product Citigroup last year agreed to stop selling once it obtained state approvals to sell a monthly-premium version. Citigroup won’t sell it in any states after Oct. 1, said spokeswoman Maria Mendler.

The cost of single-premium insurance was added to the amount of the loan, rather than being paid separately on a monthly schedule. Critics said this raised the debt burden, putting borrowers at higher risk of defaulting and losing equity in their homes.

The FTC filed suit against Citigroup in March 2001, saying Associates charged as much as 8% as a fee to make a loan and “aggressively solicited” borrowers to take out new loans and refinance their existing debts.

In August 2001, Citigroup cut ties with more than 3,600 Associates brokers who arranged loans for the company but were not Citigroup employees.