FTC Charges Associates, Citigroup With Predatory Lending Practices

Damages Could Exceed $500 Million

March 7, 2001
The Federal Trade Commission has sued the Associates group and its parent company, Citigroup, charging them of using "systematic and widespread abusive lending practices" to deceive home-equity borrowers. It's the largest case ever brought for abusive or predatory lending practices by the FTC and could result in hundreds of millions of dollars in refunds to borrowers.

Predatory Lending • Some Payday Lenders Operate Outside U.S. Law • Payday Lenders Resist APR Comparisons • Massachusetts Settles Predatory Lending Charges For $10 Million • California Payday Lenders Target Blacks, Latinos • States Battle Feds To Enforce Lending Laws • Payday Loans Can Lead to Bankruptcy • Study Disputes Lenders' Excuses for Charging Blacks and Latinos Higher Rates • ACORN Names Money Mart "Loan Shark of the Year" • States Battle Feds Over Predatory Lending Laws • States Warn Bill in Congress Would Roll Back Predatory Lending Protections • Ney-Kanjorski Bill A Ruse, Consumer Groups Charge • Business Interests Target "Activist" Attorney Generals • Option One Agrees to Clean Up Its Lending Practices in Pennsylvania • Pennsylvania Tackles Predatory Lending • Predatory Lending Guidelines Too Vague, Consumers Group Charges • North Carolina Court Strikes Down CitiFinancial's Mandatory Arbitration • Congress Targets Predatory Lending • CitiGroup Settles Predatory Lending Charges for $215 Million • Household Settles for $484 Million • Consumers File Class Action Suit Against Household • FTC Charges Associates, Citigroup With Predatory Lending Practices

Associates was one of the largest home-equity lenders in the nation when Citigroup bought it in November 2000 for $31 billion and merged it into the CitiFinancial unit. For years, consumer activists have labeled Associates as the worst predatory lender in the country and have sought federal action against it.

The FTC said that it has been investigating the company since 1998, when it was a subsidiary of Ford Motor Co.

The FTC suit charges that Associates used aggressive marketing tactics to induce cash-strapped consumers to refinance existing debts into home loands that carried high interest rates and high costs and fees and also induced them to buy high-cost credit insurance.

"They hid essential information from consumers, misrepresented loan terms, flipped loans and packed optional fees to raise the cost of the loans," said Jodie Bernstein, director of the FTC's Bureau of Consumer Protection.

Bernstein said the Associates targeted the "most vulnerable -- hardworking homeowners who had to borrow to meet emergency needs and often had no other access to capital."

The suit does not put a dollar figure on the financial redress it is seeking but Bernstein said it could be "much more" than $500 million. That number represents the earnings from single-premium credit life insurance policies Associates reported in its annual reports from 1995 to 1999.

Single-premium credit life is paid upfront -- in a lump sum at the beginning of a loan, rather than monthly. Consumer activists regard it as a despicable practice. The FTC charges that the insurance the Associates forced customers to buy added hundreds and even thousands of dollars to the cost of the loan while providing substandard protection.

Consumer groups cheered the FTC's action.

"Associates has been ripping off homeowners across the country," said Maude Hurd, president of the Association of Community Organizations for Reform Now (ACORN).

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