Citigroup Pays $20 Million
To Settle Associates Probe

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September 10, 2001
Citigroup has agreed to pay about $20 million to settle a North Carolina investigation into allegedly deceptive practices by Associates First Capital, the subprime lender Citigroup bought for $27 billion last year.

It will be one of the largest settlements ever paid in a "predatory lending" case and it most likely won't be the last for Citigroup, which also faces a federal action brought by the Federal Trade Commission (FTC) in March.

In the North Carolina case, Attorney General Roy Cooper launched an investigation in July 1999 after receiving more than 100 consumer complaints about Associates' single-premium credit insurance, a high-cost form of credit insurance that provides inferior coverage. Cooper charged that Associates frequently packed insurance premiums into loans without the borrowers' knowledge or consent. By wrapping the premiums into the loans, the company was able to charge interest on the premium, further adding to the cost of the loan.

The transactions in question occurred between August 1, 1995 and July 1, 2000. North Carolina made single-premium insurance illegal in July 2000.

As part of the settlement, Citigroup has agreed to pay refunds to an estimated 9,000 North Carolina borrowers who bought credit insurance.

The FTC case, filed in federal court in Atlanta, charges Associates with various lending abuses, including deceiving clients into refinancing debt with high-interest home equity loans. It's likely that case will also be settled without a trial, with the size of the settlement likely to exceed $100 million.

Citigroup denies the allegations in the federal case. In the North Carolina case, a Citigroup spokesman noted that the single-premium insurance sales occurred before Citigroup acquired Associates.

Citigroup has come under withering criticism from consumer groups and even from its own stockholders ever since it acquired Associates, one of the more notorious subprime lenders. It has been taking steps to reform Associates' practices.

In June, Citigroup announced that it would end all sales of single-premium credit insurance and last month it severed ties with more than 3,600 independent brokers who had done business with Associates.

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