Opposition to Citigroup - Golden State

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ICP has published a (double) book on the topic of predatory lending.  The Pittsburgh City Paper of Dec. 11, 2003, says that the "novel Predatory Bender: A Story of Subprime Finance may, in fact, be the first great American lending malfeasance novel," and mentions CitiFinancial. Click here for that review; click here for sample chapters, an interactive map, and ordering information.

May 27, 2004 update: vindicating many of ICP's assertions, on May 27, 2004, the Federal Reserve announced a cease-and-desist order against CitiFinancial, for predatory lending and for what the Fed refers to as "misleading examiners" -- basically, as documented by ICP in real time throughout the Web site, Citigroup told employees to lie, threatened to sue whistleblowing employees, and tried to hide and shred documents. Click here for the Fed's 5/27/04 press release, click here for a PDF of the Fed's 14 page order (which specifically refers to the Citi - Golden State and Citi- EAB proceedings, and the examination which followed); click here for ICP's current CitiWatch report (the May 27, 2004 Update describes how the world's biggest bank is still run by predatory lenders, document shredders, silencers of whistleblowers....For or with more information, contact us.

       ...On June 3, 2002, Inner City Press / Community on the Move and its affiliates (ICP) filed comments opposing Citigroup's applications to acquire Golden State Bancorp, with the Federal Reserve Board and the Office of Thrift Supervision's West Region.  ICP's first and subsequent comments to the Federal Reserve are summarized below, without customers' names in this format, to protect privacy.  The customers' names have been provided to the Federal Reserve and Office of Thrift Supervision.  This page will be updated.   See also, "Fed Expands Citigroup Probe To Insurance-Sale Practices: In Approval of Golden State Purchase, Subprime-Lending Issues Are Detailed," by Rob Wells, Dow Jones / Wall Street Journal, October 29-30, 2002;  "Fed Approves Citigroup's Purchase of Golden State," San Diego Union-Tribune, October 29, 2002, Pg. C3; "Citigroup Deal Approved," New York Times, October 29, 2002, Page C4; "Fed OKs Citigroup Buy Of Golden State Bancorp," by Deborah Lagomarsino and Rob Wells, Dow Jones, October 28, 2002; Citigroup's Golden State Purchase Approved by Fed," by George Stein, Bloomberg News, October 28, 2002; "Fed Going Extra Mile In Probe of CitiFinancial," by Laura Mandaro, American Banker, October 11, 2002, Pg. 1; "Fed Conducting Extensive Review Of CitiFinancial," by Rob Wells, Dow Jones Newswires, September 26, 2002;   "FTC Settles Predatory Lending Suit Against Citigroup," by Ieva Augstums and Anuradha Raghunathan, Dallas Morning News, September 20, 2002;  "Citi Fast-Track Hopes Fade As Golden Application Lags," by Laura Mandaro, American Banker, September 18, 2002, Pg. 1; "Consumer Groups Pursue Additional Review of Citigroup's Consumer Lending Reforms," by Joanna Sabatini, AFX - GEM, September 17, 2002; "Citigroup to Make Changes at Loan Unit: More Disclosure on Credit Insurance, Fewer Points Pledged, by Anuradha Raghunathan, Dallas Morning News, September 17, 2002; "Predatory Lending Document Could Target CitiFinancial," by Anuradha Raghunathan, Dallas Morning News, September 13, 2002;  "Longtime Adviser to Weill Sits Among Contenders to Throne," by Paul Beckett, Wall Street Journal, September 10, 2002;  "Citigroup Concerns Linger; Fed, Trade Commission, Groups' Queries Cloud Proposed Acquisition," by Anuradha Raghanathan, Dallas Morning News, September 2, 2002, Pg. 1D;  "Loan Pledges Initially Pay Off in Poor Areas," by E. Scott Reckard, Los Angeles Times, August 5, 2002;  "Fed Has Questions About CitiFinancial," National Mortgage News, July 29, 2002, Pg. 30;  "Efforts by Citigroup to Reform Subprime Unit Raise Questions," by Paul Beckett, Wall Street Journal, July 18, 2002, Pg. C1;  "Fed Questions Citigroup on Loans," Los Angeles Times, July 16, 2002; "Citigroup is Asked by Fed for Information on Low-Income Loans," by George Stein, Bloomberg News, July 15, 2002;  "Another Fed Probe of Citi Subprime Lending Arm," by Rob Garver, American Banker, July 12, 2002, Pg. 1; "Too Much Information? Citi Mystery-Shop Sparks Debate," by Erick Bergquist, American Banker, June 24, 2002, Pg. 17;  "Groups Oppose Citigroup Acquisition; Consumer Advocates Object to Deal with Golden State Amid Charges of Predatory Lending," Newsday, June 4, 2002, Pg. A36; "Community Groups Oppose Citigroup's Acquisition of Golden State Bancorp," A.M. Best's BestWire, June 6, 2002; "Citigroup Takeover Raises Ire," by E. Scott Reckard, Los Angeles Times, June 4, 2002;  "Citigroup's Planned $5.8 Billion Purchase of Golden State Bancorp May be Delayed," Memphis Commercial Appeal, June 4, 2002, Pg. B8; "Objections May Delay Acquisition By Citigroup," Hartford Courant, June 4, 2002, Pg. E2; "Objections May Delay Golden State Sale," San Diego Union-Tribune, June 4, 2002, Pg. C-3;  "Activists Knock Citi on Subprime; Firm Debates Data," American Banker, June 4, 2002, Pg. 4; "Groups Oppose Citibank's Deal," Associated Press, June 3, 2002;   "Citigroup's Golden State Purchase May Be Delayed," by George Stein, Bloomberg News, June 3, 2002.  Citigroup's spokeswoman told Bloomberg News and the Associated Press yesterday that Citigroup "has an excellent record of lending to all communities and adheres to the highest standards of integrity in its lending practice." Oh really? Question: how is selling credit insurance on such items as fishing rods, ice chests and video tapes consistent with the "highest standards of integrity?" Citi's flak is also quoted that "[a]s the acquisition process moves forward, we will work with community groups to address any concerns they may have.'' Well, our concerns are summarized below; this Report will be updated with Citigroup's response(s) on the issues presented.  Until then, for or with more information, contact us.

Update of November 11, 2002: ICP has filed a request for reconsideration of the Federal Reserve's October 28 order approving, despite unresolved issues and an ongoing exam, Citigroup's application to acquire Golden State. We acknowledge that there is an underlying absurdity to the FRB's request for reconsideration procedure in this instance: because the FRB imposed no waiting period, on November 7, 2002, Citigroup acquired Golden State Bancorp. It is imperative that, as a policy matter, the FRB impose waiting periods. In this case, the approval should be rescinded and other appropriate actions taken on the above-recounted matters.  Until next time, for or with more information, contact us. [And see below the request for reconsideration, Nov. 13 update]

                                                                                           November 11, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: REQUEST FOR RECONSIDERATION OF THE BOARD'S OCTOBER 28, 2002, ORDER APPROVING THE APPLICATIONS AND NOTICES OF CITIGROUP INC. TO ACQUIRE GOLDEN STATE BANCORP AND CAL FED BANK AND ITS AFFILIATES

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, and the Fair Finance Watch (collectively hereinbelow, "ICP"), this letter is a timely request for reconsideration of the Federal Reserve Board’s (the "FRB’s") October 28, 2002, Order approving the Applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

   The FRB's approval Order evades the most troubling of the issues raised, about predatory practices at CitiFinancial, and the scandals surrounding Citi's investment bank. ICP from its first comment, on June 3, 2002, inquired into the status of the examination of CitiFinancial on which the Fed had conditioned its approval of Citigroup - EAB in mid-2001. Now, fifteen months later, the FRB states that "[t]he Board is in the midst of conducting its examination of CitiFinancial and CitiFinancial Mortgage." Order at 39. This fifteen month delay reflects either (1) the FRB's lack of commitment to rooting out predatory practices at the largest company it regulates or, (2), less plausible, the FRB's lack of resources.

    Throughout this proceeding, ICP provided the FRB with documents from inside CitiFinancial, including sales training scripts that instructed employees to ask an applicant how much they could pay per month then offer a package with insurance included, and documentation of scam "mystery" shopping (employees were told the dates and topics of the "tests") and that employees' bonus are determined by how much insurance they sell. On October 9, 2002, the FRS sent three lawyers to Tennessee to depose several of ICP's sources. But before acting on any of this information, the FRB on October 28 approves Citigroup's application, stating that "some of the comments require additional investigation" (id. at 44), and noting that it has expanded its examination to include CitiFinancial's insurance sales practices and "compensation systems."

    Certainly, these matters deserve investigation. But in mid-2001, the FRB conditioned its approval of Citigroup-EAB on just this examination, and stated that it would "consider the information gathered in its examination... in reviewing future proposals by Citigroup." That the exam is still not completed, fifteen months later, means in essence that Citigroup has had a "bye," or "get out of jail free" card, for more than a year now.

   In order to give Citigroup what it wants, the FRB has created a precedent that bodes badly for CRA and communities. In mid-2001, the FRB saw fit to condition its approval of Citigroup-EAB on an examination of Citigroup's subprime lending business. But now in 2002, the FRB tries to entire disconnect predatory lending and merger approvals. It states, for example, that "[s]ome commenters have taken the opportunity provided by this notice to give the Board information and comments about the subprime lending and insurance sales activities of Citigroup's subprime lending affiliates." Order at 39, emphasis added. That has never before been the Federal Reserve's position -- and for a reason: the Fed is required by law to consider applicants' effects on low- and moderate-income communities, and their managerial resources, risk-management and compliance safeguards. The FRB dodged the first bullet in 2001 by approving Citi-EAB but conditioning its approval on an examination. But 15 months later, the exam is not done. It turns out it is in an applicant's interest to be undergoing an examination: it's a free ride as long as the examination continues. And how long will that be? The FRB states that "the scheduling, conduct and completion of an examination is determined by the availability of resources of the banking agencies and is not related to the timing of acquisition proposals." Order at 45. The FRB is implying that it does not have the resources to conduct an examination of CitiFinancial in less than 15 (or more) months. Given the Fed's budget, which is hardly overseen by Congress, the Fed's defense cannot be taken at face value. The Fed states that it is conducting its exam in "close cooperation" with the New York State Banking Department. Id. at 39. Perhaps the FRB is blaming its Citigroup-friendly delay on the NYSBD? The NYSBD has been delaying in responding to ICP's Freedom of Information Law request regarding its supervision of Citigroup; the FRB denied ICP access to "eight linear feet" of documents about this exam and still owes ICP several long-delayed FOIA request responses.

   The "bones" the FRB throws in the approval order are limited to expanding the never-ending examination of CitiFinancial to including insurance sales practices and compensation systems, and requiring Citigroup to file reports on its subprime lending -- they're most limited to its real estate lending -- for the next two years. As regards Primerica, the FRB passes the buck to the OTS. The Fed states, in footnote 67, that "commenters also expressed concerns about the sale by a Citigroup affiliate, Primerica Financial Services (and its agents), of loan products of Citicorp Trust (previously called Travelers Bank & Trust, FSB) and insurance products of other affiliates. The Board has consulted with the OTS, the appropriate federal supervisor of Citicorp Trust, and relevant state regulatory agencies and forwarded the comments to those agencies." Well, on October 29, 2002, the Office of Thrift Supervision issued an eight-page approval letter. The OTS stated that "a federal [thrift] charter may be granted only to persons of 'good' character and responsibility... The FRB, in its approval of the related application... did rely on commitments and undertakings by Citigroup, designed in part to address issues raised in various comments... OTS has concluded that is appropriate to condition approval of the federal charter application on Citigroup complying with the commitments made to and conditions imposed by the FRB."

    But as set forth above, the FRB's approval noted that Citigroup's unreformed Primerica, which sells high-cost products of Citicorp Trust FSB, is regulated by the OTS; the FRB simply forwarded comments about this to the OTS. Now the OTS defers to and relies on the Federal Reserve, without even mentioning much less addressing this issue. Note that CitiFinancial still imposes single premium credit insurance on non-real estate loans and sells bogus "property insurance" on supposed collateral like fishing rods and ladders, and that "bonuses for CitiFinancial sales people are tied to how much credit insurance they sell in conjunction with new loans." Fed Expands Citigroup Probe To Insurance-Sale Practices: In Approval of Golden State Purchase, Subprime-Lending Issues Are Detailed, by Rob Wells, Dow Jones, October 29-30, 2002.

   Even the reforms that the FRB calls "the Enhancements" won't all go into effect until "the end of 2003," according to the Order. It's a racket: perhaps the FRS exam can be kept going for another fifteen months, and then some other miniscule "reforms" announced. That's all the Fed seems to require: ground-cover for approvals.

    The FRB notes that ICP (and others) have "alleged that Citigroup underreports delinquencies in its subprime loans portfolio." [Note: ICP, with CitiFinancial's own documents, has shown this: employees distort delinquency by flipping loans or advancing the due dates by making small payments, because that's the only way they can get their ROCopoly bonuses]. But the FRB says that it "will continue to review such data in connection with its supervisory examinations." By the logic of this FRB order, everything can be secret, and approvals (at least for Citigroup) are automatic -- in part because the examinations are never completed, even after 15 months.

   The FRB recites that "a commenter asserted that, in light of allegations about the subprime lending activities, securities-related activities, and other banking services, the Board should find that Citigroup is not in compliance with the BHC Act's requirements for financial holding companies." Then the Board baldly states that "the requirements... are met in this case." PNC was threatened with losing financial holding company status; the range of scandals in which Citigroup is involved is much broader. But we forgot-- the FRB has given Citigroup an ongoing "get out of jail free" card.

   Regarding comments that the Citigroup's proposed settlement with the FTC and a "related" class action are insufficient, the FRB states that it "has forwarded these comments to the FTC." Well, ICP has a FOIA request in to the FTC that has still not been fully responded to. Citigroup's dominance of its putative regulators, including the FRB, appears to continue.

    ICP will now directly address the narrow standard to which the FRB seeks to limit requests for reconsideration: "relevant facts that, for good cause shown, were not previously presented to the Board." 12 C.F.R. 262.3(k).

   See, e.g., Dow Jones Business News of October 29, 2002, regarding "a report this week in the Chinese-language 21st Century Business Herald that Citibank provides domestic clients with credit cards from its Hong Kong and Singapore branches that enable individuals to transfer funds out of China."

  See also, Business Week of November 11, 2002, "STILL SPINNING THE NUMBERS:"

The SEC also aims to stamp out ''material misstatements or omissions'' in company announcements. But the reform drive hasn't quite quashed the temptation for companies to put the best possible spin on their numbers. Consider Citigroup's third-quarter earnings announcement on Oct. 15. The financial behemoth counted the gain from the sale of its headquarters on New York's Park Avenue for $ 1 billion toward what it calls ''core earnings,'' a measure of ongoing operations. The $ 323 million aftertax profit from the one-time transaction generated half of the 19% growth in Citi's core earnings.
Citigroup CFO Todd S. Thomson says accounting rules required it to count the gain. It was also fair because the bank's business includes a property investment portfolio. Besides, he says, most of the real estate gain booked was from the 60% of the building it had leased to other companies; gains from space it occupies itself are being taken over 15 years. GAAP discourages exclusions of all but the most extraordinary losses and gains from results. But counting it as part of its ongoing ''core earnings'' won't reassure its investors. ''Including it was a matter of judgment erring on the side of aggression,'' says Lawrence A. Cunningham, professor of law and business at Boston College. ''It is out of step with the climate.''
Thomson says the gain is one of several items. For example, Citi reduced core earnings by $ 215 million for fines it paid to settle government charges about practices years ago by Associates First Capital Corp., a consumer-finance company it bought in 2000. However, it doesn't help that Citi omitted a key fact when it compared its results with last year's: It didn't highlight that, because of an accounting rule change, it didn't have to reduce earnings by about $ 100 million a quarter to amortize goodwill this year, as it did last year. The apples-to-oranges comparison made the latest results look 3% better. Thomson dismisses the matter as ''not a huge number for us'' compared with peers.
Last year, Citi did think it was important. Then, it showed in its handout how much more the company would have earned had the rule change already been in effect. The Financial Accounting Standards Board, which ordered the change, also thought it was important to require companies to show its impact in official quarterly reports filed with the SEC a few weeks after earnings announcements. ''This is very disappointing,'' says Charles L. Hill, research director at earnings tracker Thomson First Call. ''They should just put it in the earnings release, too.''

    See New York Post of November 6, 2002, "PROBE EXAMINES WHETHER GRUBMAN PUMPED FAILING STOCK:"

Jack Grubman was in WorldCom's pocket - so says a preliminary report prepared by an independent examiner into the bankrupt telecom's failure. The former high-flying Salomon Smith Barney telecom analyst was found to have "performed roles inconsistent with that of an independent securiteis analysts," said Dick Thornburgh in his preliminary report on WorldCom, orderd by the bankruptcy court. The 122 page report devotes 23 pages to Grubman's part in the WorldCom debacle that resulted in the nation's largest bankruptcy ever. In it, Grubman is accused of, among other things, coaching WorldCom in how to answer questions during grueling "analyst calls" - conference calls when execs explain their financial statements and outlook to the experts. "Grubman even suggested a question he might ask during an analyst call that might elicit a favorable response," the report said.

    There is an underlying absurdity to the FRB's request for reconsideration procedure in this instance: because the FRB imposed no waiting period, on November 7, 2002, Citigroup acquired Golden State Bancorp. It is imperative that, as a policy matter, the FRB impose waiting periods. We note and support the California Reinvestment Committee's request for reconsideration [and that of the Woodstock Institute -- see below]. as well. In this case, the approval should be rescinded and other appropriate actions taken on the above-recounted matters.

     If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

      ICP's CitiWatch Report will be continued to be updated, weekly or more frequently.  Click here to view and/or bookmark. Here's a joint statement with CRC and Woodstock, for Nov. 13:

Citigroup Ignores Low- Income People:
Multi-City Movement Urges Bank to Provide Affordable Accounts to All Consumers

      San Francisco, Chicago and The Bronx, NY, Nov. 13 -- In an era of plentiful free and low-cost checking accounts, one of the nation's largest banks, Citigroup, takes the spotlight: not for it's affordable accounts but for its ridiculously overpriced products. Citibank lags far behind its competitors in offering basic retail accounts that are affordable to low- and moderate- income customers, and demonstrates that it has little interest in serving, in an other-than-predatory way, communities and individuals who don't directly pad its pockets.

      Three organizations based in New York, San Francisco and Chicago are raising these issues in filings to Federal Reserve Board this week, as part of their request for reconsideration on the Federal Reserve Board's decision on Citigroup's purchase of Golden State Bancorp.

     "It is egregious that a bank of this size can so flagrantly disregard low- and moderate- income communities by offering such expensive accounts. It is clear that Citi, with its $1 trillion in assets, sees itself as a bank for the wealthy," says Arthi Varma, policy advocate at the California Reinvestment Committee (CRC). Marva E. Williams of Woodstock Institute in Chicago agrees, as does Matthew Lee, executive director of Inner City Press / Community on the Move and the Fair Finance Watch, who added:

     "Citigroup's financial offerings are separate and unequal and must be changed Citibank has many fewer branches in the low-income sections of New York City than in Manhattan below 96th Street. There, Citibank has 62 branches, and only four in the lower-income portion of the county, Upper Manhattan. Worse, Citibank has only 15 branches in The Bronx, of which only four are in the lower-income half of the county, the South Bronx. Said otherwise, The Bronx has four-fifths of the population of Manhattan, but less than a quarter of the number of Citibank branches. Brooklyn has 60% more population than Manhattan, but less than half as many Citibank branches. As is true nationwide, and around the world, Citigroup's presence in lower-income communities is with its high interest rate lender CitiFinancial. This is why we say: Citigroup's financial offerings are separate and unequal and must be changed," Mr. Lee concluded.

    In California, over 80% of Citibank branches are in middle- and upper- income communities. In Oakland, nearly 70% of the City is low- and moderate- income, yet Citibank has no branches in any low- or moderate- income neighborhood of Oakland. Citi last week consummated its acquisition of Golden State Bancorp, the holding company for California Federal Bank (CalFed). "We are outraged that Citibank may end CalFed's affordable lifeline banking products after this merger occurs. It is clear that Citibank cares little about servicing the basic needs of low-income communities, and instead caters its products to high-income customers," says Kevin Stein, Associate Director of CRC.

     "The high cost of checking and savings accounts is one of the reasons that lower-income consumers never enter the financial mainstream," said Ms. Marva Williams. Although being 'unbanked' may be due to a number of factors, almost a third of unbanked families surveyed by the Federal Reserve Board in 1995 cited cost as a reason for not having a checking account. The problem is pronounced in Chicago. According to a recent report by the Metropolitan Chicago Information Center (MCIC), over 25% of Chicago consumers do not have a checking account and almost 20% do not have a savings account.

     The three above-named organizations assert that Citibank's checking accounts are expensive and burdensome. Citibank's most basic account in California costs $6.50 per month in California and only allows 6 checks per month. It's next most affordable checking account product, Easy Checking, is expensive and burdensome. The account has a minimum opening deposit of $100, limits the account holder to 10 checks per month and has a monthly fee of $9.50, a fee that is substantially higher than other institutions across the nation. The three organizations affirm that the high cost of accounts contribute to the problem of the unbanked.

     "The high cost of checking and savings accounts is one of the reasons that lower-income consumers never enter the financial mainstream," said Ms. Marva Williams. Although being 'unbanked' may be due to a number of factors, almost a third of unbanked families surveyed by the Federal Reserve Board in 1995 cited cost as a reason for not having a checking account.

     Mr. Lee identified several disadvantages is being "unbanked": "Many people in the South Bronx and communities like it do not have convenient access to a bank branch. Therefore they use check cashers who charge exorbitant fees, and they do not build up a track record and credit history that would help them get mortgages, small business loans and other credit products. Citibank participates in this exclusion, and then targets the unbanked with higher-cost loans through CitiFinancial. And so we say, again (and again): Citigroup's financial offerings are separate and unequal and must be changed," Mr. Lee concluded.

Interim update of November 4, 2002: we will be requesting reconsideration of the Federal Reserve's October 28 order approving Citigroup's proposed acquisition of Golden State Bancorp during the permitted timeframe, which runs through November 11. Until then, for or with more information, contact us.

Update of October 28-29, 2002: after six p.m. on October 28, the Federal Reserve announced its approval of Citigroup's application to acquire Golden State Bancorp. The Fed's approval order, sixty pages in length, evades the most troubling of the issues raised, about predatory practices at CitiFinancial, and the scandals surrounding Citi's investment bank. ICP from its first comment, on June 3, inquired into the status of the examination of CitiFinancial on which the Fed had conditioned its approval of Citigroup - EAB in mid-2001. Now, fifteen months later, the Fed states that "[t]he Board is in the midst of conducting its examination of CitiFinancial and CitiFinancial Mortgage." Order, page 39. This fifteen month delay reflects either the Fed's lack of commitment to rooting out predatory practices at the largest company it regulates or, less plausible, the Fed's lack of resources.

    Throughout the summer, ICP provided the Fed with documents from inside CitiFinancial, including sales training scripts that instructed employees to ask an applicant how much they could pay per month then offer a package with insurance included, and documentation of scam "mystery" shopping (employees were told the dates and topics of the "tests") and that employees' bonus are determined by how much insurance they sell. On October 9, the Fed sent three lawyers to Tennessee to depose several of ICP's sources. Now the Fed approves Citigroup's application, stating that "some of the comments require additional investigation" (id. at 44), and noting that it has expanded its examination to include CitiFinancial's insurance sales practices and "compensation systems."

     Certainly, these matters deserve investigation. But in mid-2001, the Fed conditioned its approval of Citigroup-EAB on just this examination, and stated that it would "consider the information gathered in its examination... in reviewing future proposals by Citigroup." That the exam is still not completed, fifteen months later, means that Citigroup has had a "bye," or "get out of jail free" card, for more than a year now.

    In order to give Citigroup what it wants, the Fed has created a precedent that bodes badly for CRA and communities. In mid-2001, the Fed saw fit to condition its approval of Citigroup-EAB on an examination of Citigroup's subprime lending business. But now in 2002, the Fed tries to entire disconnect predatory lending and merger approvals. It states, for example, that "[s]ome commenters have taken the opportunity provided by this notice to give the Board information and comments about the subprime lending and insurance sales activities of Citigroup's subprime lending affiliates." Order at 39, emphasis added. That has never before been the Federal Reserve's position -- and for a reason: the Fed is required by law to consider applicants' effects on low- and moderate-income communities, and their managerial resources, risk-management and compliance safeguards. The Fed dodged the first bullet in 2001 by approving Citi-EAB but conditioning its approval on an examination. But 15 months later, the exam is not done. It turns out it is in an applicant's interest to be undergoing an examination: it's a free ride as long as the examination continues. And how long will that be? The Fed states that "the scheduling, conduct and completion of an examination is determined by the availability of resources of the banking agencies and is not related to the timing of acquisition proposals." Order at 45. The Fed is implying that it does not have the resources to conduct an examination of CitiFinancial in less than 15 (or more) months. Given the Fed's budget, which is hardly overseen by Congress, the Fed's defense cannot be taken at face value. The Fed states that it is conducting its exam in "close cooperation" with the New York State Banking Department. Id. at 39. Perhaps the Fed is blaming its Citigroup-friendly delay on the NYSBD. The NYSBD has been delaying in responding to ICP's Freedom of Information Law request regarding its supervision of Citigroup; the Fed denied ICP access to "eight linear feet" of documents about this exam.

    The "bones" the Fed throws in the approval order are limited to expanding the never-ending examination of CitiFinancial to including insurance sales practices and compensation systems, and requiring Citigroup to file reports on its subprime lending -- well, they're most limited to its real estate lending -- for the next two years. As regards Primerica, the Fed passes the buck to the OTS. The Fed states, in footnote 67, that "commenters also expressed concerns about the sale by a Citigroup affiliate, Primerica Financial Services (and its agents), of loan products of Citicorp Trust (previously called Travelers Bank & Trust, FSB) and insurance products of other affiliates. The Board has consulted with the OTS, the appropriate federal supervisor of Citicorp Trust, and relevant state regulatory agencies and forwarded the comments to those agencies." Since none of the reforms Citigroup has announced applies to Primerica, it will be interesting to see how (sadly, if) the OTS deals with the Primerica issues. To Citigroup it doesn't matter much: they needed the Federal Reserve approval in order to buy Golden State Bancorp. And Citigroup will claim that this approval vindicates them. Even the reforms that the Fed calls "the Enhancements" won't all go into effect until "the end of 2003," according to the Order. It's a racket: perhaps the Fed exam can be kept going for another fifteen months, and then some other miniscule "reforms" announced. That's all the Fed seems to require: ground-cover for approvals.

     The Fed notes that ICP (and others) have "alleged that Citigroup underreports delinquencies in its subprime loans portfolio." [Note: ICP, with CitiFinancial's own documents, has shown this: employees distort delinquency by flipping loans or advancing the due dates by making small payments, because that's the only way they can get their ROCopoly bonuses]. But the Fed says that it "will continue to review such data in connection with its supervisory examinations." By the logic of this Fed order, everything can be secret, and approvals (at least for Citigroup) are automatic -- in part because the examinations are never completed, even after 15 months.

    The Fed recites that "a commenter" -- that'd be ICP -- "asserted that, in light of allegations about the subprime lending activities, securities-related activities, and other banking services, the Board should find that Citigroup is not in compliance with the BHC Act's requirements for financial holding companies." Then the Board baldly states that "the requirements... are met in this case." PNC was threatened with losing financial holding company status; the range of scandals in which Citigroup is involved is much broader. But we forgot-- the Fed has given Citigroup an ongoing "get out of jail free" card.

    Regarding comments that the Citigroup's proposed settlement with the FTC and a "related" class action are insufficient, the Fed states that it "has forwarded these comments to the FTC." That's where we'll be going next. Citigroup's dominance of its putative regulators continues -- as will this campaign. ICP has documented CitiFinancial's even more predatory practices in Mexico, India and elsewhere. The Fed states ICP's contentions about Citigroup's "projects worldwide that might damage the environment or cause other social harm... contain no allegation of illegality or actions that would affect the safety and soundness of the institutions involved in the proposal." Footnote 83; in footnote 39 the Fed blows off allegations about Mexico. Not only will this campaign continue: it will expand. As they say, watch this space.

    Further 10/29/02 update: on October 29, the Office of Thrift Supervision issued an eight-page approval letter. The OTS states that "a federal [thrift] charter may be granted only to persons of 'good' character and responsibility... The FRB, in its approval of the related application... did rely on commitments and undertakings by Citigroup, designed in part to address issues raised in various comments... OTS has concluded that is appropriate to condition approval of the federal charter application on Citigroup complying with the commitments made to and conditions imposed by the FRB." But the Fed's approval noted that Citigroup's unreformed Primerica, which sells high-cost products of Citicorp Trust FSB, is regulated by the OTS; the Fed simply forwarded comments about this to the OTS. Now the OTS defers to and relies on the Federal Reserve, without even mentioning much less addressing this issue. Note that CitiFinancial still imposes single premium credit insurance on non-real estate loans and sells bogus "property insurance" on supposed collateral like fishing rods and ladders, and that "bonuses for CitiFinancial sales people are tied to how much credit insurance they sell in conjunction with new loans." Fed Expands Citigroup Probe To Insurance-Sale Practices: In Approval of Golden State Purchase, Subprime-Lending Issues Are Detailed, by Rob Wells, Dow Jones / Wall Street Journal, October 29-30, 2002. We'll say it again (and again): for shame... 

Update of October 28, 2002: as the Federal Reserve prepared to vote on Citi - Golden State on October 28, ICP on October 27 submitted a comment to the Fed and other regulators, it is summarized below.

                                                                                           October 27, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's twenty-third comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a twenty-third comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

     We have seen that the Board has placed Citigroup's application on the agenda of its October 28 meeting. In light of the adverse matters that remain outstanding -- the numerous scandals that are swirling around Citigroup, the FRB's own October 9, 2002, deposition of various ex-CitiFinancial employees regarding predatory lending and insurance-sales practices, etc. -- ICP contends that the Board should not, and could not legitimately, consider approving Citigroup's application at this juncture.

    While Citigroup announced some relatively minor "reforms" during this process, none of the reforms are applicable to Citi's door-to-door Primerica unit, nor to CitiFinancial's "non-real estate" lending, which involves loans up to $7,500 at interest rates as high as 40% in addition to insurance that customers have not requested and that, in many cases, has no benefit to the insured. For example, CitiFinancial asks applicants for lists of "household goods" that they own, supposed as collateral for the loans. These lists, copies of which ICP timely submitted to the FRB, include items such as fishing rods, random video tapes, leaf blowers and step ladders. While CitiFinancial never repossesses such items, it nevertheless sells insurance on them. Employees have told ICP (and the FRBNY) that the only reason CitiFinancial compiles the lists is to sell insurance. Neither Citigroup's commitments to the FRB, nor the FTC proposed settlement, put an end to these practices.

    On October 9 three FRBNY staffers conducted depositions of a number of ex-CitiFinancial employees. The FRB took sworn testimony that employees were trained to close loans while obscuring the documents with their forearms, were instructed to pitch "joint" insurance (that is, with one spouse co-signing for another) and on other matters. Citigroup has not, to our knowledge, submitted any rebuttal to this sworn testimony; the FRB has yet to provide the deponents, or ICP, with copies of the deposition transcripts. In fact, in two October letters to ICP, the FRB has unilaterally extended its time to provide, under the Freedom of Information Act, documents related to Citigroup - Golden State. See FRB letters of October 9, 2002 (No. 2002-100502) and October 16, 2002 (No. 2002-100503). ICP has noticed that the FRB likes to withhold documents until after the Board has ruled on applications. ICP contests this practice, and requests that this be brought to the attention of each Governor prior to his or her vote on Citigroup's application. Similarly the FRB waited up to three weeks to write-up summaries of its ex parte meetings with Citigroup, then waited still longer to send the summaries to ICP and other commenters.

    As set forth below, last week the N.Y. Attorney General informed Sandy Weill that his "interests" could diverge from Citigroup's. The company and its CEO are under active investigation for conflicts of interest in stock recommendations; the Enron and WorldCom matters remains unresolved. At this juncture, how could the FRB even consider approving Citigroup's application to acquire Golden State Bancorp?

    Significantly, Citigroup's most recent round of micro-reforms does not apply to loans through brokers. For the record, the National Mortgage News of October 21, 2002, at Page 53, reported that " [b]eginning in this quarter, the CitiFinancial retail branch network will reduce the maximum points on real estate loans (including Section 32-HOEPA loans) from five percentage points to a maximum of three percentage points (or the lesser cap as allowed by state law.) A story on page two of our Sept. 23 issue, in error, reported that these changes would also effect mortgage brokers doing business with the company. CitiFinancial was contacted prior to the original press time of this story and was unavailable to respond in time to clarify. "

    The BHC Act's managerial and financial resources factors also militate for denial of Citigroup's applications in light of the scandals that continue to gather force around Citigroup and its highest management, including its CEO. For the record, see the Wall Street Journal of October 23, 2002, Section A; Page 1 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of October 21, 2002: While the Federal Reserve continues to unilaterally extend its time to respond to Inner City Press' FOIA requests about this deal (and the Fed's ex parte meetings with Citigroup), ICP submitted a comment on October 21; it is summarized below.

                                                                                           October 21, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's twenty-second comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a twenty-second comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

     In light of the rampart irregularities documented at CitiFinancial, including in ICP's timely submissions in this proceeding, on October 9, 2002, an FRB team including Assistant Vice President Shari Leventhal, Yoon Hi Greene, Counsel, and Ms. Gretchen Downing, Bank Examiner, all of the FRBNY, traveled to Tennessee and conducted at least three depositions of ex-CitiFinancial employees. It is imperative that all evidence made available to the FRB on that date be followed-up and acted on, before the FRB even considers this application, other than for approval. Today, ICP submitted a Freedom of Information Act ("FOIA") request for all records related to the FRB' above-reference inquiry in Tennessee. Those documents, and further (withheld and/or omitted) information regarding the FRB's ex parte communications with Citigroup, must be provided to ICP and other commenters before the FRB even considers this application, other than for approval.

   We wish to provide this update to the FRB: following the FRB staffers' deposition-taking in Tennessee, at least three CitiFinancial staffers have been fired. The FRB should demand information in this regard from Citigroup.

    For the record, Citigroup and Golden State have seemingly impermissibly jumped the gun on this proposed merger, which (obviously) does not have approval. See, e.g., the Los Angeles Times of October 16, 2002, "Glitch at CalFed Blocks Accounts; ATM/Visa check cards are deactivated amid merger preparations" --

California Federal Bank... left more than 9,000 customers stranded without access to their cash over the weekend after their ATM/Visa check cards were mistakenly canceled, CalFed executives said Tuesday. In anticipation of its pending takeover by Citigroup Inc., CalFed officials decided to change account numbers and issue new cards for about 13,000 CalFed customers whose account numbers overlapped with accounts at Citigroup, the nation's largest bank. However, because of a "programming glitch," cards were deactivated Friday for about 9,000 customers, said Janis Tarter, spokeswoman for San Francisco-based Golden State Bancorp, the parent of California Federal Bank. The cards can be used to make debit and credit purchases and to get cash from automated teller machines. "We apologize sincerely for the error," Tarter said. "Once the merger closes, we wanted to make sure we had taken care of everything in advance to minimize disruption."

    ICP formally asks the FRB and other agencies to inquire into and act on this "jumping-the-gun," which implies that the banks have either been assured of approvals or are entirely cavalier about the convenience and needs of their customers (and communities).

    The BHC Act's managerial and financial resources factors also militate for denial of Citigroup's applications in light of the scandals that continue to gather force around Citigroup and its highest management, including its CEO. For the record, see the Houston Chronicle of October 15, 2002 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of October 14, 2002: in light of depositions of ex-CitiFinancial employees conducted by Federal Reserve Bank of New York staff members on October 9 (see Update of October 11, below), and the settlement between Household International and various state regulators announced October 11, ICP on October 14 submitted a supplemental comment to the Federal Reserve, OTS and FDIC; it is summarized below.

                                                                                           October 14, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's twenty-first comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a twenty-first comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    In July 2002, and on September 5 and 16, 2002, the FRB allowed Citigroup to make ex parte presentations about its settlement with the Federal Trade Commission ("FTC") and certain California-based class actions lawyers. On September 17, the FRB asked Citigroup certain questions, and on October 9, three staff members of the Federal Reserve Bank of New York ("FRBNY") deposed at least three ex-employees of CitiFinancial regarding CitiFinancial's training and sales practices. Those depositions will be addressed infra: first, ICP wishes to formally take part of the record the settlement announced by various state regulators and Household International on October 11, 2002.

   The state regulators' settlement with Household, unlike the FTC's and class action lawyers' Sept. 19 settlement with Citigroup, contains injunctive relief and required reforms. (As previously noted, so did the FTC's settlement earlier this year with First Alliance). Also, while Citigroup would be obtaining a near-total release of claims for its victims (estimated by the FTC at two million people), the Household settlement and release explicitly allow those who accept payments to be able to raise their claims as defenses to judicial or non-judicial foreclosure actions.

     Three quick comparisons, for the record: the Citigroup settlement that the FTC and California-based class action lawyers announced on September 19 would spread $240 million among two million victims: an average of $120 apiece. The Household settlement splits $484 million among an estimated 310,000 victims: over $1,500 apiece. Citigroup's victims would be require to release all of their claims; Household's victims could retain their claims as defenses to foreclosure. And, most significant to ICP (and presumably to the agencies), whereas reforms were required from Household, no such reforms were required from Citigroup, despite CitiFinancial's continued imposition of single premium credit insurance on non-real estate consumer loans, solicitation of lists of household goods like fishing rods and ice chests in order to sell insurance on them, etc.. For the record, the Citigroup settlement, proposed on September 19, is looking more and more like a product of a reserve auction and/or of "disarmed counsel." See, e.g., Cheryl Reynolds, et al. v. Beneficial National Bank and H&R Block, 288 F.3d 277 (2002).

    And so the FRB (and OTS and FDIC) cannot legitimately rely on the proposed settlement announced on September 19 as resolved the adverse issues timely raised in this proceeding (in fact, quite the contrary: Citigroup's attempt to extinguish the claims of two million customers, even as defenses against foreclosure, is scandalous). Rather, the FRB must follow-up on the record before it, and the sworn deposition testimony it collected on October 9, 2002 (these depositions should be made part of the record before the Board and other agencies). For the record:

    On October 9, three staff members from the FRBNY were in Tennessee deposing ex-CitiFinancial employees. They took sworn deposition testimony concerning how CitiFinancial employees are trained and how disclosures are made to CitiFinancial customers. While those deposed [FN: And ICP in advance of the depositions] urged the FRB to go into CitiFinancial branches and obtain certain documents before they can be moved or destroyed, this was not done. However, the FRB now has in its possession documents and sworn deposition testimony that evidence current predatory practices at CitiFinancial. This must have ramifications on Citigroup's applications to acquire Golden State Bancorp -- i.e., on the current record, Citigroup's applications could not legitimately be approved.

    Those deposed made the FRB aware that CitiFinancial employees including district manager Nancy Neel have recently been observed removing and shredding documents. Also, among the trainers listed was Mr. Ed Starkey, now a higher-up within CitiFinancial. The FRBNY staff members were provided with a number of documents, including sample print-outs from CitiFinancial's Maestro computer system, sample ROCopoly bonus reports (showing the pressure on employees to sell insurance), and sample sales training scripts. They asked: why do these documents have exhibit numbers on them? Answer: Because ICP had already submitted them to the Fed, opposing Citi-Golden State. Our question: if the FRB did not even ensure that the staffers sent to conduct this inquiry were aware of the exhibits timely submitted in this proceeding, how serious and/or professional is the FRB's inquiry and review?

   The BHC Act's managerial and financial resources factors also militate for denial of Citigroup's applications in light of the scandals that continue to gather force around Citigroup and its highest management, including its CEO. For the record, see the WALL STREET JOURNAL, October 10, 2002, Thursday, Section A; Page 1, Column 1, CITIGROUP NOW HAS NEW WORRY: WHAT GRUBMAN WILL SAY [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of October 11, 2002: on October 9, three attorneys from the Federal Reserve Bank of New York were in Tennessee deposing ex-CitiFinancial employees. The Fed representatives' questions focused on how CitiFinancial employees are trained and how disclosures are made to CitiFinancial customers. While those deposed, and Inner City Press in advance of the depositions, urged the Fed to go into CitiFinancial branches and obtain certain documents before they can be moved or destroyed, this was not done. However, the Fed now has in its possession documents and sworn deposition testimony that evidence current predatory practices at CitiFinancial. This must have ramifications on Citigroup's applications to acquire Golden State Bancorp, and otherwise.

    In a September 23 comment to the Federal Reserve (summarized below on this page), Inner City Press recounted the tale of Kelly Raleigh, a CitiFinancial employee who had just be fired based on Citi's (erroneous) suspicion that she was the source of documents ICP had previously obtained, submitted and reported on.  On September 30, ICP chided the Fed for failing to have contacted Ms. Raleigh. The following week, Ms. Raleigh was contacted by Ms. Shari Leventhal, an Assistant Vice President at the New York Fed, and an appointment for deposition was made.

     Ms. Raleigh made the Fed aware, among other things, of documentation of particular fraudulent loans, and that CitiFinancial employees including district manager Nancy Neel had recently been observed removing and shredding documents. For that reason, ICP did not report the New York Fed's visit to Tennessee before it took place (that is, to make further shredding less likely).  Now that the three Fed representatives have come and gone (without seeking to obtain the documents Ms. Raleigh told them about) -- now, it can be told.

    Accompanying Ms. Leventhal were Ms. Yoon Hi Greene, Counsel, and Ms. Gretchen Downing, Bank Examiner, both of the New York Fed. On the morning of October 9, ex-CitiFinancial employee Roy Cook was deposed for more than two hours in a conference room at the Holiday Inn Express in downtown Knoxville. The Fed lawyers' questions included: How were you trained to sell insurance? How were you trained to disclose APR and rate? How were you trained to encourage joint applications (that is, co-signers), and to sell joint insurance? And who trained you to do these things?

     Among the trainers listed were Mr. Ed Starkey, now a higher-up within CitiFinancial.  Supervising CitiFinancial during this time frame were Chuck Prince, Bob Willumstad, Marge Magner and others.  The Fed also asked about so-called "defensive loans," in which CitiFinancial seeks to convert unsecured debt into a lien against the customer's home or auto. The Fed examiners were provided with a number of documents, including sample print-outs from CitiFinancial's Maestro computer system, sample ROCopoly bonus reports (showing the pressure on employees to sell insurance), and sample sales training scripts. They asked: why do these documents have exhibit numbers on them? Answer: Because Inner City Press has already submitted them to the Fed, opposing Citi-Golden State.

    That the New York Fed attorneys claimed to be unaware of CitiFinancial documents that ICP submitted in timely opposition to Citi's Golden State application, from June 3 onwards, was surprising. It reflects either that the Fed staffers only superficially prepared for their journey to Tennessee or that the Federal Reserve Board wants to confine the ongoing problems at CitiFinancial to some confidential slow-boat outside of the merger application process. Neither explanation reflects well on the Fed.

    Already, the Fed has withheld "eight linear feet" of documents concerning its review of CitiFinancial, in response to a FOIA request from ICP. Throughout September, the Fed allowed Citigroup lawyers to privately brief them, with no notice (and only cursory summaries) to commenters against the Citi-Golden State deal. These briefing included Citigroup's spin on its proposed settlement of predatory lending claims with the FTC and certain California-based class action attorneys (the problems with this settlement are analyzed below on this page). We report these facts now, to do what we can to make clear what the Fed knew, and when they knew it. As to Citigroup's knowledge, we note that we've been reporting on these predatory lending issues, specifically in Tennessee, since February 2002. Inner City Press raised the issues, in person, to the new Solomon CEO, at that time, and to Citigroup's overall CEO at the company's annual meeting in April 2002. Ignore and/or try to cover-up a (predatory lending) problem long enough, and it just might just get malignant...

Update of October 7, 2002:  ICP today submitted  a comment to the FRB, OTS and FDIC; for the Fed's non-compliance with its own rules against ex parte communications, see ICP's October 2, 2002, CitiWatch Report

                                                                                           October 7, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's twentieth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a twentieth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    First, ICP formally demands an explanation from the FRB as to why it conducted ex parte meetings with Citigroup on September 5, 13 and 16, including on issues related to the predatory lending concerns timely documents by ICP in this proceeding -- without giving any notice to ICP, and providing only cursory and redacted summaries weeks after the fact. On October 1, ICP received from the FRB by regular mail a slew of correspondence between Citigroup and the FRB, reaching as far back as September 5, 2002. These material should have been sent to ICP and others at the time, but weren't. Let's review:

    According to an FRB memo dated September 23, 2002, on September 5 four Citigroup attorneys met with Fed staff "to discuss the status" of the FTC's predatory lending case against Citigroup. "The discussion lasted approximately 40 minutes," according to the FRB memo. None of the timely commenters opposing Citi-Golden State were informed of this meeting, much less allowed to participate. In fact, the FRB inexplicably delayed 18 days before memorializing the meeting in a memo, and a further three days before sending this memo out.

   At the September 5 meeting, according to the delayed memo, Citigroup "outlined the terms of the proposed settlement reached between Citigroup and FTC staff." Citigroup "stressed that, although the FTC settlement would contain no injunctive relief, Citigroup and CitiFinancial would voluntarily implement additional polices and procedures (the 'Enhancements') to CitiFinancial's insurance sales practices to safeguard against abusive practices in CitiFinancial's subprime lending operations."

   We note that Citigroup has since stated that these "Enhancements" to not even purport to apply to PFS, Citigroup's Primerica Financial Services, which is also (at least partially) a Citigroup "subprime lending operation."

   We further question how meaningful are these since-announced reforms, largely consisting of new consumer brochures, not dissimilar to those already in place (and already being ignored) at CitiFinancial?

    The Fed's September 23 memorialization of the September 5 meeting has numerous redactions, including of whole paragraphs. ICP hereby demands access to this improperly withheld information under the Freedom of Information Act ("FOIA") and, directly, under the FRB's rules against ex parte communications.

    The next contact which the FRB has now belated disclosed took place on September 13, 2002. This meeting lasted two hours and fifteen minutes, and involved Citigroup's Charles Prince, Todd Thomson, Joan Guggenheimer, Stephanie Mudnick and Michael Zuckert. The FRB memo states:

"Mr. Prince provided an overview of Citigroup's analysis of the various securities-related issues and how Citigroup was addressing those issues... He also responded to System staff's inquiries about the additional responsibilities of Citigroup's senior management in light of the recently announced managerial changes.... As an update, Ms. Mudnick advised that the FTC was expected to publicly announce the settlement on Thursday, September 19... She added that, on September 12, CitiFinancial has sent a memo to all of its branches concerning these changes... Mr. Thomson discussed the impact of all these matters on evaluations of Citigroup by the rating agencies and Citigroup's finances. He also discussed certain other matters related to Citigroup's financial strength."

    This cursory Fed memo does not have any explicit redactions on it. The reason? The memo is so general as to be meaningless. This was an ex parte contact of which no notice was provided, and of which only the most vague notes have now been provided. This must be corrected, to the degree it can be, before the FRB even considers Citigroup's application, other than for denial.

   Next, on September 16, FRB staff spoke with Citigroup's Carl Howard for ninety minutes "to clarify certain additional policies and procedures regarding CitiFinancial's insurance sales practices. This six-page Fed memo, dated September 24, is substantially redacted. It refers to a letter sent to the FRB on September 11 by Citigroup's outside counsel, Stacey McGinn at Skadden Arps.

   This September 11 letter, which was supposed to be sent to ICP at that time, was only provided by Citigroup on October 1, along with another week-old document, Citigroup's September 23 letter to the FRB. This letter includes Citigroup's responses to "Questions from the Federal Reserve dated September 17" -- questions that the FRB should have, but didn't (and still hasn't) sent to ICP, under the FRB's own rules. Among Citigroup's undated answers is this Q & A:

"Do the new best practices apply to PFS?"

"No. The best practices were designed expressly to address the concerns raised regarding insurance sales within the CitiFinancial branch-based business."

   This is significant, given predatory lending issues that have been raised about the sales practices of PFS / Primerica. The Q&A also re-confirms that CitiFinancial continues to sell single premium credit insurance on non-real estate loans (which is more than half of its business).

    The FRB and Citigroup have both improperly withheld notice of and information about their discussions throughout the month of September 2002, in flagrant disregard for the FRB's own prohibition on ex parte communications. Citigroup's Chuck Prince, et al., were allowed to make ex parte presentations to FRB staff for over two hours on September 13, with no notice to timely commenters opposing the Citigroup - Golden State application pending before the FRB. Citigroup's "reforms" do not address PFS / Primerica at all, and hardly address CitiFinancial's non-real estate lending, which continues to including single premium credit insurance and insurance on such items as fishing rods, ice chests and leaf blowers. Citigroup remains a predatory lender.

    More than before, it is clear to ICP that the FRB could not legitimately consider approving Citigroup's applications to acquire Golden State Bancorp at this time. [FN]  Now that more is known about the proposed settlement orders in the Federal Trade Commission's (the "FTC's") and California class action lawyers' predatory lending cases against Citigroup, ICP wishes to formally raise additional questions not only about the FTC's failure to obtain reforms of CitiFinancial (see ICP's last comments), but also about the propriety (and adequacy) of the $25 million settlement (and related $20 - $25 million attorneys fee) for Associates flipping victims on a purportedly nationwide basis. The California class actions to which the FTC chose to tie its proposed settlement were only filed in February 2002. The cases have not yet been certified as a class even as to California customers, much less nationwide. In fact, the class action lawyers in these cases have repeated failed to get earlier cases certified as class actions. ICP has been contacted by plaintiffs' attorneys in other states, with cases against CitiFinancial, who were explicitly solicited by Citigroup's in-house lawyers, including Martin Wong (who signed the FTC settlement for Citigroup), as to whether they might wish to turn their cases into class actions and settle them. While this seems counter-intuitive, the explanation is that Citigroup was looking for a national class action to settle on the cheap (here, $25 million), while extinguishing the rights of millions of consumers.

    Settlement of these still uncertified California cases would result in up to two million customers waiving (that is, losing) their claims. Importantly, the release that customers would sign in those cases would mean that defenses of fraud and flipping could not be used even to oppose subsequent foreclosure cases brought by CitiFinancial. So the settlement would be not only convenient, but also lucrative, to Citigroup.

    What's perhaps most significant in all this is Citigroup's encouraging of class actions. {FN: For now we can attribute such entreaties to Citigroup's Martin Wong (who signed for Citigroup on the FTC settlement). It is believed that the strategy comes from above Mr. Wong: in particular, now Solomon Brothers CEO Charles O. Prince, III[.ICP is explicitly raising this, in extraordinary circumstances, under the managerial resources factor that the FRB must consider in connection with Citigroup's applications.

    The BHC Act's managerial and financial resources factors also militate for denial of Citigroup's applications in light of the scandals that continue to gather force around Citigroup. For the record, Time magazine of October 7, 2002 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of September 30, 2002: Now that the proposed settlement orders in the FTC's and California class action lawyers' cases against Citigroup are public, questions have arisen not only about the FTC's failure to obtain reforms of CitiFinancial, but also about the adequacy of the $25 million settlement for Associates flipping victims on a purportedly nationwide basis. On September 30, ICP submitted a comment to the FRB, OTS and FDIC raising these and other questions. The comment is summarized below.

                                                                                           September 30, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's nineteenth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a nineteenth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

     Now that the proposed settlement orders in the Federal Trade Commission's (the "FTC's") and California class action lawyers' predatory lending cases against Citigroup are public, ICP wishes to formally raise questions not only about the FTC's failure to obtain reforms of CitiFinancial (see ICP's last comment), but also about the adequacy of the $25 million settlement for Associates flipping victims on a purportedly nationwide basis. The California class actions to which the FTC chose to tie its proposed settlement were only filed in February 2002. The cases have not yet been certified as a class even as to California customers, much less nationwide. Nevertheless the proposed California settlement provides for attorneys fees of between $20 and $25 million dollars: as much as the "flipping" redress that Citigroup is offering.

   ICP had wondered, at sought at the FTC's September 19 press conference to ask, whether customers obtaining the FTC-proposed "Redress" (said to average $1,000) would be releasing any or all claims against Citigroup. FTC Chairman Muris pointedly prohibited ICP from asking any follow-up question, despite earlier allowing others as many as three questions. Now from the documents made available, ICP concludes: customers would be releasing all claims, explicitly including claims that are not presently aware of (even if this were through Citigroup's own withholding of information).

    The proposed settlement of the California "class" actions recites (inaccurately) that Citigroup "has adopted a series of consumer-oriented initiatives that address concerns raised by...consumer groups...". And see infra. Citigroup's reforms to date have not resolved the issues raised by consumer groups including ICP, including but not limited to systemic misrepresentations made in connection with consumer loans, the continued sale of single premium credit insurance on personal loans, the fraudulent collection of property lists as purported collateral for personal loans and the sale of (useless) property insurance on such items as fishing rods, ice chests and lawn mowers. See ICP's timely exhibits submitted to date in this proceeding.

    It is illuminative to compare the settlement that FTC requested and obtained from First Alliance earlier this year with its September 19 proposed settlement with Citigroup. In the First Alliance case, the FTC requested and obtained a list of prohibited business practices, including no misleading representations (including regarding the purported benefits of bill consolidation), and no future Truth in Lending Act violations. The FTC's First Alliance settlement explicitly states that the FTC can obtain discovery, and can use mystery shoppers at First Alliance or its successors. ICP formally asks: why did the FTC not obtain any of these things from Citigroup? The FTC's proposed settlement states (and this is to be evaluated and confirmed or denied by the court) that it is "in the public interest." We think not. Nor does the proposed settlement resolve the outstanding issues of predatory lending that are of record in this proceeding.

   In a Bloomberg News transcript dated September 23, 2002, Citigroup's Robert Willumstad said "more importantly, the actual product itself, single premium credit insurance, we actually discontinued. " That is not true: CitiFinancial continues to this date to sell single premium credit insurance on its non-real estate loans, a substantial part of its business. Then, in response to a question ("has the work that you've had to do with Associates to I guess, for lack of a better word, clean it up helped you to uncover things that needed improvement throughout CitiFinancial?") Mr. Willumstad stated "Well, not specifically. Again, CitiFinancial has a long history. It's been in business for about 90 years and certainly going back to the almost 16 years now that it's been associated with Citigroup or the predecessor company, Travelers, has had really, I think, an impeccable record of having no regulatory problems, no legal action against it." Emphasis added. That's also not true, as the record before the agencies in this proceeding show: the litigation list, etc.. Also incorrect was Mr. Willumstad's response to the question "are there other outstanding lawsuits against Associates that you still have to deal with?" -- he stated, "We really think this puts virtually every one of them behind us. I mean this was the principal issue for the Associates. Again, it was sales practices around insurance. So we really do think this puts virtually all of it behind us." Again, see the litigation list that the agencies have request, and Citigroup has filed, in this proceeding.

    Beyond community groups and consumers, there are others beginning to raise these questions. As simply one example: ICP was contacted last week by the lawyers for an on-going (and as opposed to the California cases, long-standing) class action against Citigroup on predatory lending issues. These lawyers are dubious of the proposed settlements, including because their state's law would provide for substantially more redress than the $25 million proposed in the California-based (but now purportedly nationwide) cases. These lawyers state that in the months prior to the FTC's September 19 announcement, they met with and provided documents to the FTC, including named counsel Lucy Morris. Leading up to September 19, Citigroup's lawyers called them to inquire if they were ready to settle, on terms they found inadequate for their clients. When they expressed doubts about the adequacy of the offer(s), both Citigroup's lawyers and the FTC stopped returning their calls. Now, after September 19, they have attempted to contact the plaintiffs' lawyers in the California purported nationwide class actions, and none of their calls have been returned. They state, of "Citi's effort to have the California class action 'include' a national class" that this "is a fraud upon a fraud if you ask us." It's hard to disagree...

    More that the agencies should look into: a CitiFinancial loan, from its Morristown TN office, to Linda Bowers. The loan documents provided to Ms. Bowers list one witness, but on CitiFInancial's copy there are two witnesses listed. CitiFinancial employee Sherri Lee closed the loan and hard-sold the insurance; after three years of payments Ms. Bowers' payoff is $4,000 more than what it was the day she took out the loan. Sherri Lee is one of the suspended employees (the "Morristown Three," see below and ICP's last comment). There's also a lien that CitiFinancial attached to a Tennessee property without the consent of one of a title-holders, an eight-year old child. The loan was made in October 2001 and flipped in March 2002. Also pressing is another sample Morristown loan, to Linda Clark. Despite Ms. Clark's current severe illness, her insurance documents were forged / fraudulently procured.

   An update on last week's comment: while the "Morristown Three" remain on suspension, it is reported that district manager Jim Chakales is back on the job -- reconfirming that when violations occur, it is only the lower-level employees who suffer consequences, not district managers or regional managers or higher. And so it goes. Serious questions have been raised under, inter alia, the managerial resources statutory factor that the FRB, OTS and FDIC must consider in this proceeding. The agencies must forthwith inquire into the facts recounted above, and take action thereon. On the current record, the agencies could not legitimately consider approving Citigroup's applications.

   This is also true in light of the scandals that continue to gather force around Citigroup, which provide a separate basis for both the (still-) requested hearing and for the denial of this Citigroup expansion application, under the BHC Act's managerial resources factor and otherwise. For the record, the Washington Post of September 24, 2002 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of September 23, 2002: Having critiqued the Federal Trade Commission's deceptive settlement with Citigroup the day it was announced (see ICP's CitiWatch Report of September 19), we've devoted our September 23 comments to the Fed, OTS and FDIC to an insider's view of CitiFinancial. The comment is summarized below.

                                                                                           September 23, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's eighteenth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a eighteenth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    On September 19, 2002, the Federal Trade Commission ("FTC") held a press conference announcing a proposed settlement of its predatory lender case against Citigroup. ICP wishes first to emphasize that this proposed settlement does not resolve the issues pending before the FRB, and that the FRB has inquired into. The FRB, based in part on exhibits obtained and submitted by ICP, has inquired into current CitiFinancial practices, including non-real estate consumer lending and insurance practices. None of these are addressed by the FTC's proposal settlement. We ask: given, for example, the affidavit of longtime CitiFinancial employee Gail Kubiniec which the FTC obtained and filed, why does the FTC's proposed settlement only offer "redress" (averaging only $1,000) to customers of Associates from 1995 into 2000, and not customers of CitiFinancial? Why are none of the consumer lending and insurance practices -- for example, CitiFinancial continues to hard-sell single premium credit insurance on such loans -- addressed? We demand that the FRB address these issues, in this proceeding.

    We are submitting this supplemental comment in extraordinary circumstances (as set forth below); it should be made part of the record before the Board. This submission addressed issues of retaliation against whistleblowers at CitiFinancial, including in connection with the exhibits ICP has submitted to the FRB, OTS and FDIC. Accordingly these agencies, including the FRB, are morally (and legally, we contend) bound to act on the issues set forth below.

    ICP last week interviewed a long-time CitiFinancial employee who was recently fired for whistle-blowing: that is, for reporting widespread consumer protection violations in the CitiFinancial region where she worked. Her name is Kelly Raleigh. She began working at what was then the Sandy Weill-run Commercial Credit in 1990. After the merger with Citicorp it was renamed CitiFinancial. As recounted below -- along with break-out questions from ICP -- she was brow-beaten from April through July 2002, was suspended in July, and "terminated" in August.

    Kelly Raleigh went to work for Commercial Credit in 1990. Through her twelve year career, she would work at and, later, manage, a half-dozen different offices of Commercial Credit then the renamed CitiFinancial. As she was promoted from loan officer to branch manager, she began to see more and more irregularities. She states that she was trained to close loans while covering the actual loan documents with her forearm, so the customer couldn't read them. She declined to do this, choosing instead to describe to the customer the terms of the loan.

    Even when the company was named Commercial Credit, it required "property lists" of household items to purportedly secure consumer loans averaging $5,000 to $7,000. Employees were directed to sell insurance on these household items. ICP has previously timely submitted evidence of CitiFinancial insurance sold on ice chests and fishing rods; Ms. Raleigh describes a loan to an elderly woman that was "secured" by a ladder, on which insurance was sold. Routinely, personal property insurance was sold to customers who already had comprehensive (and expensive) homeowner's insurance: a process known as "double-dipping" in which the second insurance policy has no benefit to the customer. Ms. Raleigh states that CitiFinancial employees routinely doctored insurance applications for customers to make them eligible for insurance (selling unemployment insurance to housewives / home-makers, and changing the ages and medical history of customers). The reason? To get bonuses, employees had to hit ever-rising insurance sales "penetration levels."

    Ms. Raleigh's real troubles, however, began when she became aware that CitiFinancial was illegally collecting on a loan, and had been for a number of years. The loan was a second mortgage made by the Morristown, Tennessee office. When the borrower died, CitiFinancial did not go to court and obtain a judgment: rather it began collecting from the deceased borrower's son. They pressured the son to put up his car as collateral. When Ms. Raleigh became aware of the illegal collection practices, she raised the issue up through the chain of command: to her district manager Jim Chakales, to her regional manager David Baer, and, as recounted further below, even higher. But nothing was ever done: the Morristown branch manager Lisa Wilcox wrote a memo claiming that the borrower was still alive. Ms. Raleigh was instructed to "quit being a cry-baby and just do it" -- that is, collect on it. By then the loan had been transferred from the Morristown office to the Jefferson City office, where Ms. Raleigh was branch manager and therefore in charge of continuing to collect on the loan. She refused to keep collecting, and advised the original (and deceased) borrower's son to seek a refund. She told her supervisors she had given this advise -- "since I have to live with myself," she told them.

    There were other CitiFinancial practices Ms. Raleigh began to complain about. When she started working at Commercial Credit, the "qualifying level" of insurance sales required to get a bonus was set to 81. Later, under CitiFinancial, this minimum was raised to 100: that is, insurance sales on an ever-larger percentage of loans. Also, while CitiFinancial's Maestro computer system who show the loan officer CitiFinancial's "best prices," employees were directed to request higher interest rates from borrowers. The Maestro computer system might show that 10% interest could be offered: but employees were supposed to offer a 14% interest rate.

    When in February 2002 ICP began to report in detail on systemic predatory lending by CitiFinancial, including documentation from branches in Tennessee -- Citigroup's Responses in this proceeding have acknowledged their awareness of these ICP Reports, from the beginning -- Ms. Raleigh and others were summoned to a meeting in the CitiFinancial office in Kingston Pike, Tennessee. The date was April 4, 2002: Ms. Raleigh was told to go to Kingston Pike and to not tell anyone she was going there. Inside, a CitiFinancial auditor from Baltimore named Keith Black was waiting, along with a CitiFinancial outside counsel named Clarence Rison and his associate Ginger Browning. Ms. Raleigh states that she was told that this was a deposition; she was questioned about any knowledge she had of documents being "leaked" from CitiFinancial offices. Ms. Raleigh said she had no knowledge. The following day, they visited her at the Jefferson City office, asking pointedly if she had anything else to say. She didn't.

    On June 3, 2002, ICP submitted to the FRB, OTS and FDIC documentation of, for example, CitiFinancial insurance sold on fishing rods and ice chests, and various internal CitiFinancial memoranda and sales training scripts. See ICP's Exhibits. On June 25, 2002, Ms. Raleigh was summoned to the CitiFinancial's Broadway office, where she met with Mr. Rison and another CitiFinancial official: James E. Cappola, the Director of Investigations of Corporate Security for CitiFinancial. At these meeting, Ms. Raleigh described at length the consumer protection compliance violations she had witnessed, including illegal collections from a dead man's son, forgery by employees on insurance documents, and systemic distortion of delinquency. To obtain bonuses, reported delinquencies can only be so high. But the numbers can be distorted by, for example, canceling insurance policies so that insurance premium can be reallocated to loan payments. Ms. Raleigh also corroborated ICP's earlier account of distortion of delinquency by district manager Chakales: the invocation of "blizzard deferments" on loans when no snow had, in fact, fallen.

    Mr. Rison expressed doubts about all of this, according to Ms. Raleigh. "Are you really saying that Mr. Chakales did that?" he asked.

    "Yes," said Ms. Raleigh.

     I think you're mis-remembering things, Mr. Rison insisted, again and again.

     "So I guess you're going to fire me," Ms. Raleigh finally said.

      "No," said CitiFinancial's Mr. Cappola. "You cannot be fired for saying this. We're here to get the facts and get this thing fixed."

     But it soon became clear to Ms. Raleigh that the "thing" that CitiFinancial wanted to "get fixed" was the leaking of documents reflecting CitiFinancial's practices, and not the practices themselves. On June 26, 2002, the day after the meeting at the Broadway office, Ms. Raleigh was confronted in the Jefferson City office and asked again: who is leaking? Who is keeping diaries of our practices? By now Ms. Raleigh had contacted an attorney, and she told Mr. Rison and his colleagues that she was represented by counsel, and not to talk with her anymore.

    But on July 3, regional manager David Baer and district manager Jim Chakales came to the Jefferson City office and told her she was suspended. When she asked why, she was not given a reason. Rather, Mr. Chakales said that he'd happily take a lay off to fix this, to stop this leaking. Just after this, Mr. Chakales went out to tell employees that Ms. Raleigh was being replaced (that is, not simply suspended).

    As previously timely raised to the agencies -- but now understood -- immediately following CitiFinancial's July 3, 2002, suspension of Ms. Raleigh, CitiFinancial changed the locks on her office in Jefferson City, and at the Morristown office as well. Morristown employees were interviewed over two days, and district manager Nancy Neel was observed removing documents from the Morristown to Jefferson City office, where she was observed shredding the documents. Only then was an audit of the Morristown office performed: an audit that the Morristown office not surprisingly passed. This calls into question much of what Citigroup has said, in this proceeding, about its audits. What might these shredded documents have reflected? It has been suggested to ICP that they consisted of the paper trail of various fraudulent loans: transactions in which, to sell insurance, customers' ages were changed (so that the age on the ID documents and the applications forms were different); documents concerning loans that CitiFinancial had been illegally collecting on, etc..

    Over the next week, Ms. Raleigh went to spend time with her family. Mr. Chakales was leaving her daily messages on her cell phone: "We need to speak to you." On July 15, 2002, Ms. Raleigh went to a Ruby Tuesday's restaurant to meet with Mr. Baer. When she got there, Mr. Baer announced that he was waiting for one more person. When this person arrived, it was a female attorney. "But I'm represented by a lawyer," Ms. Raleigh said again. "You can't have a lawyer question me without my own lawyer here." But the questioning proceeded: Ms. Raleigh was asked to provide the names of the people leaking information or she would be prosecuted.

   "For what?" she demanded. When the question wasn't answered, she called her lawyer on her cell phone, who told her to leave Ruby Tuesday's immediately. She did.

     Question: How is Ms. Raleigh's suspension and termination consistent with Citigroup's claims, to the Federal Reserve, to ICP and to the public, that they protect and do not retaliate against whistle-blowers -- much less that they want to "do the right thing, every time"?

     On August 13, 2002, Kelly Raleigh received a letter of termination, dated August 7, 2002, and labeled "Overnight Delivery." The letter tersely stated that the cause was her refusal to cooperate with Company management regarding a violation of company policy. The "Company Policy" referred to must be a policy against whistle-blowing: because Ms. Raleigh repeatedly sought to report and cooperate regarding exposing and changing violations of consumer protection policies and laws.

    Since then, Citigroup's outside counsel has written that Ms. Raleigh is not a whistleblower under Tennessee law, and apparently now claims that Ms. Raleigh either never brought up consumer protection violations, or that these are not the reason she was suspended and terminated. But the facts, verifiable by the agencies including the FRB, don't and won't bear this out.

    Just prior to submission of this comment in extraordinary circumstance, ICP was told that manager Lisa Wilcox and two other employees of the Morristown office have been suspended for 30 days each; district manager Jim Chakales has reportedly been suspended "indefinitely, pending investigation." But are even these actions -- which the agencies including the FRB should inquire into and confirm -- taken months after the facts began to be reported and documented by ICP, sufficient? On September 16, 2002, CitiFinancial CEO Mike Knapp issued a memo purporting to announce additional "reforms" in CitiFinancial's insurance sales practices. On September 19, after the announced proposed settlement of the FTC's predatory lending case (with both Citigroup and the FTC claiming that the problems were limited to Associates First Capital -- which had and has nothing to do with the above-recounted), Citigroup's Bob Willumstad claimed that CitiFinancial is a leader in the consumer finance industry. Mr. Willumstad long presided over Commercial Credit then CitiFinancial; many of the policies and practices described above were designed under his watch. The more specific chain of command up which Ms. Raleigh's and others' complaints rose, but were ignored, went as follows: district managers Jim Chakales and Nancy Neel; regional manager David Baer; then Don Laney, then K.C. Meade, then Mike Knapp, the current CEO of CitiFinancial. Serious questions have been raised under, inter alia, the managerial resources statutory factor that the FRB, OTS and FDIC must consider in this proceeding. The agencies must forthwith inquire into the facts recounted above, and take action thereon. On the current record, the agencies could not legitimately consider approving Citigroup's applications.

    This is also true in light of the scandals that continue to gather force around Citigroup, which provide a separate basis for both the (still-) requested hearing and for the denial of this Citigroup expansion application, under the BHC Act's managerial resources factor and otherwise. For the record, The Guardian (London) of September 21, 2002 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of September 18, 2002: Sources tell Inner City Press that the Federal Trade Commission plans to hold a press conference on Thursday, September 19, in order to announce its settlement with Citigroup of predatory lending charges. As reported below, this settlement does far less than it should. Left untouched, for example, are CitiFinancial's abusive insurance sales practices, particularly in connection with non-real estate consumer loans. CitiFinancial's Mike Knapp's September 16 memo, characterized by Citigroup and in the press as a "series of reforms," in substance changes very little. On insurance, the memo trumpets CitiFinancial's current practice, then says that a new "consumer-friendly brochure will be added," for example. The N.Y. Times of September 16, after adopting CitiFinancial's definition of credit insurance as " credit insurance, an optional product meant to cover monthly payments if the borrower is seriously injured or dies," quotes Bob Willumstud that "We continue to look at ways to improve the sales process... The complexity of the sales process means there is big potential for misunderstandings."

     But it's no misunderstanding: CitiFinancial's compensation scheme, called ROCopoly, requires employees to hit particular levels of insurance sales in order to get their bonuses. This is why insurance is hard-sold at CitiFinancial, and it will continue. Also apparently slated to continue is CitiFinancial's practice of obtaining "property lists" as supposed collateral for personal loans -- including such items as fishing rods, ice chests and self-recorded video tapes on the lists, then selling insurance on them. This insurance is fraudulent per se, in that CitiFinancial admits it does not foreclose on or repossess such "household items." There's no misunderstanding here: CitiFinancial is a predatory lender. The FTC's too-limited settlement does not change that, nor does Citigroup's laughable "reform" memo of September 16.

   The FTC's failure to act on these problems at CitiFinancial -- after collecting affidavits about them, and asking ICP and other groups for documentation -- is akin to a police officer asking a neighborhood resident to help in an investigation, and then refusing to act on the information provided. In advance of the FTC's September 19 press conference (and the Federal Reserve ruling on Citi-Golden State which will apparently follow thereafter), we say: for shame. That the Fed is preparing to approve Citi's Golden State application is foreshadowed by a front-page article in the September 18 American Banker, noting that Citi buttressed its consumer finance sales practices last year during the approval process for EAB. It promised to stop selling single-premium credit insurance and to improve its record of lending in minority communities. The Fed gave its approval for the EAB transaction one week later." The article reports: Steve Silverman, a spokesman for Citi, said: "We continue to work with regulators" on the Golden State deal, "which we believe is on track to close shortly." Hey, Citigroup's September 16 was even less meaningful than what Citi announced during the EAB proceeding. How low can you go?

Update of September 16, 2002: While the FTC tries to placate Citigroup by ignoring evidence against CitiFinancial that the FTC has requested and obtained, and on the eve of another half-way reform announcement by CitiFinancial (see below), ICP submitted a comment on these matters to the Federal Reserve, OTS and FDIC. It is summarized below

September 16, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's seventeenth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a seventeenth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

     The American Banker of September 16, 2002 ("Citi Revamps Policy on Credit Insurance," Pg. 20) reports [snip]

     Given that Monday's American Banker newspaper is finalized the previous Friday, it appears clear that Citigroup leaked the announcement. ICP has not yet seen the referenced memorandum from CitiFinancial's Mike Knapp. The FRB should obtain this document, release it to ICP and the public, and allow comment thereon in this proceeding. As the exhibits ICP has timely submitted in this proceeding make clear, any "reform" that does not meaningfully address CitiFinancial's personal consumer lending and insurance practices, including the sale of useless insurance on such items as fishing rods, ice chests and video tapes, would be insufficient. Furthermore, in light of Citigroup's recent statements (including those quoted infra) attempting to justify CitiFinancial employees signing documents for customers (in ICP's experience, often without the customers' knowledge or consent), the alluded-to "reforms" should be fully inquired into, with a skeptical eye. Comment must be allowed thereon; the comment period should be extended and, on the current record, the FRB could not legitimately consider approving Citigroup's applications.

    ICP has received a heavily-redacted copy of Citigroup's September 6, 2002, Supplemental Response to the FRB's questions of August 16, 2002. As set forth below, this Citigroup submission contains misstatements and is contradicted by the exhibits ICP has timely submitted in this proceeding. For example, the FRB's Question 11 of August 16, 2002, was directly related to predatory lending issues timely documented by ICP in this proceeding:

FRB Question 11: The information in Item 1 of Citigroup's submission dated July 29, 2002 and items 14 and 15 of the July 17 Submission appears to be somewhat contradictory. To avoid any possible misunderstandings, please provide the total number of improper disclosures or instances of improper disclosures (including, but not limited to, untimely disclosures, failures to make disclosures, and inappropriate disclosures) related to the sale of credit insurance, protection plans, and other similar products at CitiFinancial branches that were identified in 2001 and the first six months of 2002 through audits and any other form of internal or external review. Also, provide the total number of instances in which CitiFinancial personnel were discovered, through internal or external audits or other means during 2001 and the first six months of 2002, to have provided inaccurate or false information about a customer for purposes of insurance, protection plan, or other similar product qualifications.

ICP note: the record before the FRB includes cases whether, for example, an individual who'd had a heart attack the previous year was nevertheless sold credit life insurance; the CitiFinancial loan officer said "don't worry about it" and checked the No Pre-existing Condition" box on the form. See below, regarding different colors of ink on the forms.

Do not limit the response to 'branches that failed audits,' as in items 14 and 15 of the July 17 Submission. Citigroup's responses should identify the total number of branches that were found in the audits... to have any of the following occurrences: (1) failure to obtain the customer's consent prior to including insurance products in the loan documents

    ICP note: in response, Citigroup states that "It would be a violation of CitiFinancial policies and procedures for CitiFinancial personnel to present loan documents at closing with insurance or protection plan products and premiums included in the loan payment calculation without the customer's consent to purchase and-or finance the insurance or protection plan products."

   But the CitiFinancial script ICP submitted as its Exhibit 7.3 shows that this -- insurance without consent -- is CitiFinancial's policy, at least on all non-real estate loans. Specifically, ICP Exhibit 7.3 shows that CitiFinancial tells its employees, as "Ideas for Improving Sales," to "Ask 'What kind of payment do you feel comfortable with?' Then develop a protected loan to fit the need. THIS ONE PHRASE WILL IMPROVE SALES ENORMOUSLY."

Thus Citigroup's above-quoted September 6, 2002, statement about its "policies and procedures" is not credible. In response to

(2) failure to inform the borrower during negotiation that purchase of insurance and similar products is optional

Citigroup writes "TEXT REDACTED." ICP has today formally contested, under FOIA and the FRB's ex parte rules, that and other Citigroup redactions and withholdings. In response to:

(3) the optional nature of the product was not otherwise disclosed before and/or at closing;

Citigroup also writes "TEXT REDACTED." ICP is contesting that and other redactions. In response to:

(4) the branch failed to rerun, or retract and rebook, a loan without insurance or similar product when the borrower elected not to have insurance at closing;

ALL Citigroup writes is "TEXT REDACTED." ICP is contesting that and other redactions. In response to:

(5) insurance documents were prepared by an employee rather than by the borrower;

Citigroup writes "TEXT REDACTED," followed by "[t]hese exceptions do not imply that employees completed documents without the customer's consent. CitiFinancial's policies and procedures do not permit employees to complete documents for the customer, and identifying exceptions to these policies and procedures is an audit device used to identify the areas in which CitiFinancial should focus its management and training resources. The fact that an employee may have physically completed a form for the customer, while an audit exception, does not imply that the respective document was not reviewed and approved by the customer."

   ICP has described in detail various CitiFinancial loans, including one in which a CitiFinancial employee checked "no pre-existing condition" for a co-applicant who had, and disclosed, a heart attack in the last year. Specifically, ICP's initial June 3, 2002, Comment stated: "Customer Loretta Jones and her husband applied for a loan through a CitiFinancial office in Knoxville. Mr. Jones was and is being treated for a heart condition. The insurance form requires an answer regarding pre-existing health conditions. The Jones' were told to leave this blank, and were charged for insurance, rolled into the loan. When they sought a copy of the final version of their documents, they found that CitiFinancial had subsequently checked the box, 'no heart condition,' and sent the form to American Health & Life. Inquiries were made, but no actions were taken." Citigroup's answers are not credible. In response to

(6) credit disability questions were answered in different color ink than that used by the borrowers to sign their names;

Citigroup writes "TEXT REDACTED," followed by "As with the prohibition on completing documents for the customer, monitoring the use of different colors of ink on a document is an audit device for CitiFinancial to determine where to focus its management and training resources. Given the large number of documents that must be signed at a closing and the fact that there may be two customers signing on the loan, it is understandable (albeit an audit exception) that customers may fill out or sign documents with more than one pen. This does not imply that employees completed the loan documents, much less that they did so without the customer's consent." ICP contests the redaction (and Citigroup's above-quoted statements). In response to

(7) personal property insurance was placed on unacceptable collateral;

ALL Citigroup writes is "TEXT REDACTED." ICP has documented, for example, CitiFinancial hard-selling insurance on fishing rods, leaf blowers, and video tapes, and then doubling the listed value of the items in order to sell more insurance. See, e.g., ICP's timely Exhibits 12 and 13. This is a key issue -- the FRB cannot allow Citigroup to withhold the entirety of its response on this issue. In response to

(8) insurance or similar product enrollment / authorization forms were unsigned by the borrower;

Citigroup writes "TEXT REDACTED," and then states " Although insurance enrollment / authorization forms are expected to be signed by the customer, in view of the large number of documents to be executed at closing, it is understandable (albeit an audit exception) that in some cases a document may not be signed or may later be misplaced. In most if not all cases, the customer has signed one or more other documents indicating the customer's desire to take insurance...". ICP contests this redaction (and Citigroup's above-quoted statements). In response to

(9) the branch failed to process a cancellation of an insurance or similar product

Citigroup redacts an entire page, its entire response. ICP contests this and other Citigroup redactions. In light of Citigroup's disingenuous and overbroad requests for Confidential Treatment, all improperly withheld documents should be released forthwith, and comment thereon allowed. On the current record, the FRB could not legitimately consider Citigroup's applications, other than for denial.

  ICP has also renewed its request for all records reflecting any FRS personnel’s communications regarding the application of CitiFinancial, whether intra-agency or with the above-captioned companies regarding the proposal, all comments received on the proposal (on an ongoing basis), and other records in the FRS’ possession related to the proposal.

   The FRB should note, for the record, the Dallas Morning News of September 13, 2002 ("Predatory Lending Document Could Target CitiFinancial"), which reports:

A proposed $200 million settlement in a predatory lending lawsuit against Citigroup Inc. has been characterized as a preacquisition deal that traces back to practices at The Associates First Capital Corp. The Associates, a Dallas-based subprime lender, was acquired in a $27 billion deal in November 2000. These "problems were related to a company before we acquired it," said Citigroup Chief Executive Sanford I. Weill in a statement on Friday.  But at least one affidavit filed in the Federal Trade Commission case specifically slams practices at CitiFinancial with no mention of the Associates. Gail Kubiniec, who has never worked for The Associates, charged in her July 2001 affidavit that CitiFinancial employees were under pressure to "pack" insurance with their loans. "I and other employees would often determine how much insurance could be sold to a borrower based on the borrower's occupation, race, age and education level," said Kubiniec, a former CitiFinancial employee, in the affidavit. "If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the coverages CitiFinancial offered. The more gullible the consumer appeared, the more coverages I would try to include in the loan."
Citigroup refused to comment on the specifics of the affidavit. "We are in active litigation, and I have to decline to comment on anything related to the suit or to the settlement," said Christina Pretto, a Citigroup spokeswoman. In a second affidavit filed in February 2002, Michele V. Handzel, an Associates employee who went on to work at a CitiFinancial branch, said this: "CitiFinancial put much more pressure on employees than the Associates did to include as many credit insurance and ancillary products as possible on every loan. In fact, I feel that the credit insurance sales practices at CitiFinancial were worse than at The Associates." The FTC charged in March 2001 that the Associates lured consumers to refinance existing debts into home loans with higher interest rates and fees and that it packed optional fees to inflate the cost of loans. Community group leaders across the country are now pointing to these affidavits and saying that the predatory lending case and settlement should go beyond The Associates to include an examination of practices at CitiFinancial today.

"The moment the FTC filed an affidavit by an individual who was not even with the Associates, the case was expanded," said Matthew Lee, executive director of Fair Finance Watch at Inner City Press in New York. "If the case was only about the Associates, that affidavit (from Kubiniec) would not be relevant."

   The record before the FRB cries out for a full inquiry into CitiFinancial's current practices, including those documented by the exhibits ICP has submitted. Whatever new "reforms" Citigroup may be announcing must be made available to the public, and comment allowed thereon. On the current record, the FRB could not legitimately consider approving Citigroup's applications.

    This is also true in light of the scandals that continue to gather force around Citigroup, which provide a separate basis for both the (still-) requested hearing and for the denial of this Citigroup expansion application, under the BHC Act's managerial resources factor and otherwise. For the record, the Economist in an overview article of September 14, 2002 ("Passing the Buck") [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of September 9, 2002: on September 6, 2002, Citigroup's CEO announced that Citigroup is "close" to a settlement of the Federal Trade Commission's predatory lending lawsuit against it. The issue is addressed in a comment ICP filed with the Federal Reserve, OTS and FDIC on September 9, summarized below. 

                                                                                             September 9, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's sixteenth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a sixteenth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

   The Washington Post of September 7, 2002, reported: "'We are going to admit the things we did wrong,' Citigroup chief executive Sanford I. Weill said at a Merrill Lynch & Co. banking conference in New York yesterday. 'Nothing has come to anybody's attention that we have done anything illegal.'" This followed a September 6 Wall Street Journal report that Citigroup is near settling the Federal Trade Commission's predatory lending lawsuit for $200 million. "'When we acquired Associates about a year and a half ago, they had some problems with the FTC that related to what they did with insurance ... and other things that were described as improper predatory lending, we have been working with the FTC,' Weill said. 'These problems basically related to a company before we acquired it,' he stressed." AFX, September 6, 2002. But "Mr. Weill ducked out before questions." American Banker, September 9, 2002.

    ICP wishes to first address in this comment the range of impacts that the predatory lending settlement discussed by Citigroup's CEO on September 6 should and might have on Citigroup's pending Golden State Bancorp applications. First, given the centrality of the predatory lending issues to this proceeding, the FRB should immediately inquire into the scope and timing of this reported settlement, and should await details of the settlement before considering this application for anything but denial. Even the FRB's ex-associate general counsel Oliver Ireland told the American Banker (September 9) that "'if some regulator goes after [Citigroup] and they settle,' banking regulators could be 'required to consider things related to the management of that function' when assessing a merger application." Emphasis added. We agree: these unresolved issues go directly to the factors that the FRB must consider and rule on in connection with this application.

    Second, the FRB has before evidence of predatory practices at CitiFinancial that go beyond real estate lending, and beyond the practices of Associates First Capital when Citigroup acquired it. For example, ICP has submitted into the record CitiFinancial training scripts where employees are told to "design [insurance] protected products" without the customer having requested insurance; to request property lists for all loans to sell insurance thereon, including on items like fishing rods, ice chests and leaf blowers which the record reflects CitiFinancial does not foreclose on or repossess. These are predatory practices per se; ICP has urged the FRB to declare them "unfair and deceptive practices" under the authority confirmed by the FRB chairman in a letter to Congress earlier this year.

   Third, these issues go to not only the CRA / C&N and managerial factors, but also to the financial factor. The Guardian of September 5 quoted Prudential Financial's Citi-analyst that "'Citigroup stands out relatively more for having all of these issues under one roof'... [A]ny successes achieved through lawsuits mounted for damages against Enron could cost Citigroup alone as much as $10 billion."

   Citigroup's responses to the FRB's 21 questions of August 16 were due on August 28; Citigroup was directed to send a copy to commenters and make its requests for confidential treatment, if any, at that time. On September 3, Citigroup mailed out copies of a so-called "public redacted version" of a response it apparently submitted to the FRB on August 28. In the text of this document, Citigroup refers to numerous purportedly "Confidential" exhibits, and redacts whole paragraphs and pages of text. ICP is contesting Citigroup's withholdings and requests for confidential treatment, including in a FOIA request / appeal submitted today.

    On page 1 of Citigroup's Response to FRB's Questions dated August 16, 2002 (hereinbelow, the "Resp."), Citigroup refers to "Confidential" Exhibit YY in response to FRB Question 2. This exhibit by the terms of the question contains information about lending in 2000 and 2001, HMDA data for which is public. Accordingly, it is illegitimate to withhold the entire exhibit. The same applies to "Confidential Exhibits" ZZ and AAA. ICP also contests the redactions on page 4, regarding the number of CitiFinancial real estate loans with single premium insurance and pre-computed loans as of year-end 2001 and as of June 30, 2002.

   FRB Question 6 concerns CitiFinancial's practice of compensating employees based on how much insurance they sell. In response, Citigroup redacts the entirety of page 6 of its response; ICP contests the redaction (and the other redactions on page 7, and the redactions on page 9 concerning audits triggers by insurance cancellations.

   ICP again contests the withholding of "Confidential" Exhibits OO, PP and RR: sales training materials which, if Citigroup's response is complete, include scripts which ICP has already obtained and made public. It is illegitimate to request confidential treatment for documents that are already public. If Citigroup's submissions differ from, or omit, the scripts ICP has submitted, that is significant as well. The Exhibits must be released.

   ICP contests the withholding of "Confidential" Exhibit DDD, regarding insurance disclosures at closing.  ICP contests the withholding of "Confidential" Exhibit EEE, regarding the states in which CitiFinancial sells Real Estate Home & Auto Security Plans, and the redactions on pages 11-12, regarding the number of Plans sold.

    ICP notes that Citigroup's Resp. did not respond to FRB question 11 (the Resp. states, "to be provided by amendment") -- this "amendment" must be provided to ICP and other commenters, and comment allowed thereon. ICP contests the redactions on pages 15-16 regarding CitiFinancial's sham "Mystery Shopping."   ICP contests the withholding of "Confidential" Exhibit HH, regarding the valuation of personal property on which CitiFinancial sells insurance (the property, as demonstrated by ICP's exhibits, including such items as fishing rods, ice chests, and random video tapes). ICP also contests the withholding of the intervening "Confidential" Exhibits, FFF and GGG. ICP contests the redactions on pages 17-20 (regarding "Referral Up"), and those to page 18-19 regarding "Conforming Product Pilot," etc.. ICP contests the redactions to pages 29-35, regarding Citigroup's lending including in 2001 (for which HMDA data is already public, see supra). ICP contests the redactions to page 38, regarding branch closures that would result from this proposal, if it were (as it should not be) approved.

    In light of Citigroup's late-provision of copies of its submissions, and its disingenuous and overbroad requests for Confidential Treatment, all improperly withheld documents should be released forthwith, and comment thereon allowed. On the current record, the FRB could not legitimately consider Citigroup's applications, other than for denial.

* * *

    ICP's continuing analysis of the recently-released 2001 HMDA data reveals that Citigroup's prime mortgage lending is more disparate than others in the industry. In the Baltimore MSA in 2001, cumulating Citibank FSB and CitiMortgage (hereinbelow "Citi-Prime"), Citi-Prime denied the conventional home purchase applications of African Americans 14.69 more frequently than whites, and denied Latinos 22 times more frequently than whites: wildly more disparate that the industry aggregate's denial rate disparities in the Baltimore MSA (3.16 for African Americans and 2.36 for Latinos). [snip - contact ICP for more recent data]

    The scandals that continue to gather force around Citigroup provide a separate basis for both the (still-) requested hearing and for the denial of this Citigroup expansion application, under the BHC Act's managerial resources factor and otherwise. For the record, AFX European Focus on September 3, 2002 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of September 3, 2002: ICP has submitted a new comment, summarized below. It quotes from the Federal Reserve's new question letter to Citigroup. Also, a late-provided Fed memo dated August 16 recites that "[o]n July 30," two Citigroup lawyers "called Board staff to inquire about whether the Board would act in August on Citigroup's notice... Board staff did not provide information concerning when the Board would act on the Citigroup Proposal. On July 31, Board staff called Mr. Howard to inform him that staff could not advice when the Board would act on the Citigroup Proposal, but that it was unlikely the Board would consider the matter in August, as Citigroup had requested."

                                                                                             September 3, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's fifteenth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a fifteenth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

   While we continue to await the "eight linear feet of documents" that the FRB is withholding regarding its examination of CitiFinancial, we will focus in this submission on (1) CitiFinancial loans at over 40% interest, packed with insurance; the intentionally limited nature of CitiFinancial's "Referral-Up" program; and certain of the FRB's August 16 Additional Information ("AI") questions; (2) Citigroup's disparate prime lending in 2001 in Newark, New Jersey and Washington DC; and (3) the still-expanding scandals in which Citigroup finds itself, including yet another House of Representatives subpoena (this time concerning IPO stakes and artificially favorable research recommendations given to corporate executives to procure investment banking business for SSB), and the implications of Citigroup's dealings with Enron, WorldCom, Global Crossing et al. on the managerial, compliance and financial factors that must be reviewed in connection with this Citigroup expansion application.

     ICP has received a copy of the FRB's AI letter dated August 16, posing 21 questions to Citigroup. Citigroup's responses were due on August 28; Citigroup was directed to send a copy to commenters and make its requests for confidential treatment, if any, at that time. On August 30, ICP telephoned FRB staff and was told that Citigroup would not be providing a "public" copy of its response until September 3. Given the nexus between several of the FRB's August 16 questions and the evidence ICP has submitted, ICP intends to comment on Citigroup's response upon receipt, and contends that the FRB could not legitimately consider Citigroup's application, other than for denial, until Citigroup belated provides its responses to ICP and other commenters..

    (1) Annexed hereto as Exhibit 15.1 is documentation of a loan at a 40.45% interest rate which CitiFinancial made earlier this year. The customer -- who CitiFinancial states has a monthly income of $861 (that is, $10,000 a year) -- is also paying for credit life insurance and "property insurance" on the collateral that CitiFinancial listed as securing this loan. Given the customer's stated income, this is "hard lending" -- little different than a pawnshop.

    Annexed hereto as Exhibit 15.2 is an internal CitiFinancial document regarding "post date checks," stating that "[a]s we discussed last month, about half of you need to do a much better job in securing postdated checks."

   Annexed hereto as Exhibit 15.3 is another internal CitiFinancial document, this one describing to employees the "Rate Reduction Plus" plan that Citigroup has presented to the FRB and other regulators. At page 2, in the nature of "don't worry about it," CitiFinancial tells its employees that "[t]his special CitiMortgage mailing included about 8000 CitiFinancial customer names, that's an average of only 4 accounts per branch." Another reason not to worry: "customers must meet strict credit criteria in order to be eligible for an invitation. This credit criteria [sic] (the same as the pilot Referral-Up program) is defined as follows... LTV of 75% or less LTV at the time of the loan... Loan on books for a minimum of 12 months."

    With these limitations, CitiFinancial employees (who are paid based on who much they gouge customers) are told not to worry about the window-dressing of the Rate Reduction (and Referral-Up) programs.

   CitiFinancial's reforms to date have been less than meaningful, and have not even applied by their terms to CitiFinancial's non-real estate lending, in which single premium insurance is still sold, and insurance is sold on such items as leaf blowers and random video tapes. CitiFinancial is a predatory lender.

    While ICP awaits receipt of Citigroup's overdue responses to the FRB's August 16 AI letter, ICP wishes to highlight and add to the following FRB questions, as annotated below:

FRB Question 11 [of 8/16/02]: The information in Item 1 of Citigroup's submission dated July 29, 2002 and items 14 and 15 of the July 17 Submission appears to be somewhat contradictory. To avoid any possible misunderstandings, please provide the total number of improper disclosures or instances of improper disclosures (including, but not limited to, untimely disclosures, failures to make disclosures, and inappropriate disclosures) related to the sale of credit insurance, protection plans, and other similar products at CitiFinancial branches that were identified in 2001 and the first six months of 2002 through audits and any other form of internal or external review. Also, provide the total number of instances in which CitiFinancial personnel were discovered, through internal or external audits or other means during 2001 and the first six months of 2002, to have provided inaccurate or false information about a customer for purposes of insurance, protection plan, or other similar product qualifications.

ICP note: the record before the Fed includes cases whether, for example, an individual who'd had a heart attack the previous year was nevertheless sold credit life insurance; the CitiFinancial loan officer said "don't worry about it" and checked the No Pre-existing Condition" box on the form. See below, regarding different colors of ink on the forms.

Do not limit the response to 'branches that failed audits,' as in items 14 and 15 of the July 17 Submission. Citigroup's responses should identify the total number of branches that were found in the audits... to have any of the following occurrences: (1) failure to obtain the customer's consent prior to including insurance products in the loan documents;

ICP note: the CitiFinancial script ICP submitted shows that this -- insurance without consent -- is CitiFinancial's policy, at least on all non-real estate loans.

(2) failure to inform the borrower during negotiation that purchase of insurance and similar products is optional; (3) the optional nature of the product was not otherwise disclosed before and/or at closing; (4) the branch failed to rerun, or retract and rebook, a loan without insurance or similar product when the borrower elected not to have insurance at closing; (5) insurance documents were prepared by an employee rather than by the borrower;

ICP note: this happens on most of the health-related questions on the insurance forms.

(6) credit disability questions were answered in different color ink than that used by the borrowers to sign their names; (7) personal property insurance was placed on unacceptable collateral;

ICP note: CitiFinancial directs its employees to obtain collateral lists for EVERY non-real estate loan, and to write property insurance on the items. The items ICP has documented include an ice chest, fishing rods, leaf blowers, an electric typewriter, and random video tapes. We assume that this is what the Fed means by "unacceptable collateral" -- but this type of collateral, regarding which CitiFinancial never records its interest and on which it rarely if ever forecloses, is clearly deemed "acceptable" by CitiFinancial.

(8) insurance or similar product enrollment / authorization forms were unsigned by the borrower; and (9) the branch failed to process a cancellation of an insurance or similar product.

FRB Question 6.b: In Item 6 of the July 17 submission, Citigroup indicated that insurance sales are part of Citigroup's ROC point system of assessing branch performance. Citigroup also indicated that Regional Managers are compensated, in part, based on the 'number of branches over ROC.' Please clarify what impact insurance sales at the branch level, directly or indirectly, has on a Regional Manager's compensation.

ICP note: We have been told that Regional Managers only receive their annual bonuses if at least half of their branches hit the "Qualifying" (in some cases, "Superior") level of insurance sales. ICP will be submitting further comments, but will await receipt of Citigroup's overdue responses to the FRB's August 16 questions.

    (2) ICP's continuing analysis of the recently-released 2001 HMDA data reveals that Citigroup's prime mortgage lending is more disparate than others in the industry. In the Newark, New Jersey MSA in 2001, cumulating Citibank FSB and CitiMortgage (hereinbelow "Citi-Prime"), Citi-Prime denied the conventional home purchase applications of African Americans 8.87 more frequently than whites, and denied Latinos 6.06 times more frequently than whites: significantly more disparate that the industry aggregate's denial rate disparities in the Newark MSA (3.38 for African Americans and 2.39 for Latinos). [snip - contact ICP for more recent data]

    (3) The scandals that continue to gather force around Citigroup provide a separate basis for both the (still-) requested hearing and for the denial of this Citigroup expansion application, under the BHC Act's managerial resources factor and otherwise. For the record, AFX European Focus of August 30, 2002 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of August 26, 2002: on August 23, ICP submitted a supplement comment to the Federal Reserve, OTS and FDIC opposing Citigroup's Cal Fed applications. A summary is below.

                                                                                             August 23, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's fourteenth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a fourteenth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    While we continue to await the "eight linear feet of documents" that the FRB is withholding regarding its examination of CitiFinancial, we will focus in this submission on (1) Citigroup's disparate prime lending in 2001 in California and Nevada ; (2) sample CitiFinancial loans and attempts to collect; and (3) the still-expanding scandals in which Citigroup finds itself, including yet another House of Representatives subpoena (this time concerning Global Crossing), and the implications of Citigroup's dealings with Enron on the managerial, compliance and financial factors that must be reviewed in connection with this Citigroup expansion application.

    ICP has received the FRB's letter of August 19, unilaterally extending the FRB's time to respond to ICP's July 18 FOIA request for Citigroup's responses to the FRB's July 3 Additional Information ("AI") letter.  ICP again notes for the record that the FRB on August 8, 2002, gave Citigroup ten working days to "submit written objections to disclosure of the information [ICP] ha[s] requested." As of this writing on August 23, ICP has received neither the documents nor even Citigroup's purported justification of its overbroad request for confidential treatment. ICP notes that the OCC extends comment periods when an applicant has mis-requested confidential treatment for submissions related to issues raised by commenters. We contend that the Governors could not legitimately consider Citigroup's application, for anything other than denial, until the FRB has provided and allowed comment on the referenced information, including the portions of Citigroup's July 29 and July 17 submissions for which Citigroup has disingenuously requested confidential treatment under the Freedom of Information Act ("FOIA") and the FRB's ex parte rules. Otherwise, Citigroup benefits by over-requesting confidential treatment, whether its requests are upheld or not.

     (1) ICP's continuing analysis of the recently-released 2001 HMDA data reveals that Citigroup's prime mortgage lending is more disparate than others in the industry, including in California and Nevada. In the Los Angeles MSA in 2001, cumulating Citibank FSB and CitiMortgage (hereinbelow "Citi-Prime"), Citi-Prime denied the conventional home purchase applications of African Americans 5.27 more frequently than whites, and denied Latinos 2.37 times more frequently than whites: significantly more disparate that the industry aggregate's denial rate disparities in the Los Angeles MSA (2.12 for African Americans and 1.65 for Latinos). [snip - contact ICP for more recent data]

   (2) The record in this case reflects that CitiFinancial produces lists of its customers ranked by remaining-equity-in-home (i.e., equity-stripping lists); one such list showed a customer left with negative income after CitiFinancial loan. Annexed hereto as Exhibit 14.1 is a recent (August 19, 2002) CitiFinancial internal write-up of another customer, who is described as "homeless, staying with mother temporarily with three children, only receives $700 a month disability." This customer has an "account balance" with CitiFinancial of $8,568.43. Since the largest consumer loans are $7,500, it appears clear that this customer has been repeatedly flipped.

    In terms of CitiFinancial's collect practices, annexed hereto as Exhibit 14.2 is a recent (August 20, 2002) CitiFinancial collections "communication" -- a fax sent out where not only the customer, but others, could see it.

    Annexed hereto as Exhibit 14.3 is a communication from another CitiFinancial Mortgage customer, stating that he and his spouse have a second mortgage with CitiFinancial Mortgage at around 18% interest and that CitiFinancial has refused to provide them copies of their loan documents. As previously noted, this is by no means uncommon at CitiFinancial.

    (3) The scandals that continue to gather force around Citigroup provide a separate basis for both the (still-) requested hearing and for the denial of this Citigroup expansion application, under the BHC Act's managerial resources factor and otherwise. For the record, the American Banker of August 23, 2002 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of August 19, 2001: On August 19, ICP submitted a supplement comment and exhibits. Beyond the below, an idea being floated is the break-up of Citigroup, at minimum into retail (banking and subprime consumer finance) and wholesale (investment banking) units, along the lines of Citigroup's spin-off of Travelers. As Citigroup become more enmeshed in daily scandals, the potential liabilities of taxpayers la S&L bail-out comes to the fore. Add this to the relatively small size of Citigroup's de facto management team, the lack of any clear successor to the current major domo, the quasi-governmental functions Citigroup has taken on, including distribution of public assistance and other benefits, and the reasons for breaking up Citigroup only mount... Some anti-predatory lending advocates are beginning to note that CitiFinancial may even step-up its gouging practices to make up for Citigroup's increases losses in corporate lending, Latin America and structured finance... ICP's most recent comments are summarized below.

                                                                                             August 19, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's thirteenth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a thirteenth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    While we continue to await the "eight linear feet of documents" that the FRB is withholding regarding its examination of CitiFinancial, we will focus in this submission on (1) Citigroup's disparate prime lending in 2001 in its headquarters city; (2) the unseemly pressure within CitiFinancial to force-place credit insurance on loans (whether or not customers request it); and (3) the expanding scandals in which Citigroup finds itself, including a new House of Representatives subpoena, and resignation and controversial final payment to SSB telecom analyst Jack Grubman, and the implications of Citigroup's dealings with Enron on the managerial, compliance and financial factors that must be reviewed in connection with this Citigroup expansion application.

   First, however, ICP notes for the record that the FRB on August 8, 2002, gave Citigroup ten working days to "submit written objections to disclosure of the information [ICP] ha[s] requested." ICP contends that the Governors could not legitimately consider Citigroup's application, for anything other than denial, until the FRB has provided and allowed comment on the referenced information, including the portions of Citigroup's July 29 and July 17 submissions for which Citigroup has disingenuously requested confidential treatment under the Freedom of Information Act ("FOIA") and the FRB's ex parte rules.

    (1) ICP's analysis of the recently-released 2001 HMDA data reveals that Citigroup's prime mortgage lending is more disparate than others in the industry. In the New York City MSA in 2001, for conventional home purchase loans (HMDA Table 4-2), Citibank N.A. denied applications from African Americans 2.79 times more frequently than those of whites, and denied applications from Latinos 2.49 times more frequently than whites. Both were higher than the industry aggregate's denial rate disparities in this MSA (2.0 for African Americans and 1.74 from Latinos).

    Citigroup's other prime lender in this market, CitiMortgage, was worse. In the NYC MSA for conventional home purchase loans in 2001, CitiMortgage denied African Americans 4.04 times more frequently than white, and denied Latinos 2.94 times more frequently than white, both more disparate than the industry average.

   Cumulating Citibank N.A. and CitiMortgage (hereinbelow "Citi-Prime"), Citi-Prime in the NYC MSA denied the conventional home purchase applications of African Americans 3.15 more frequently than whites, and denied Latinos 2.59 times more frequently than whites: significantly more disparate that the industry aggregate's denial rate disparities in the NYC MSA (2.0 for African Americans and 1.74 from Latinos). [snip - contact ICP for more recent data]

     (2) The record in this case reflects that CitiFinancial trains and requires its employees to include credit insurance ("protection") in loan packages whether or not the customer requests it (see training scripts previously timely submitted), to demand property lists in order to hard-sell insurance, etc.. We wish to emphasize that these are long-term CitiFinancial (and before that, Commercial Credit) practices, and cannot be attributed to the acquisition of Associates First Capital Corp. ("Associates") in late 2000. Annexed hereto as Exhibit 13.1 is a pre-Associates memo to branch managers stating inter alia that "I would like each employee to notify the Manager of any loans they have approved to close (prior to the closing of the loan) if the $/000 if below $104/000. I would then like the Manager to get involved with this loan and make a concerted effort to sell it up, if not over the phone then at the loan closing. There is just too much bonus money at stake not to get these numbers up!"

   For the record, "$104/000" means at least $104 in insurance premiums for every $1,000 of loan.

      The conclusion of this Exhibit 13.1 memo references another memo by Bill Davis, previously referenced in ICP's submissions and exhibits in this proceeding. Annexed hereto as Exhibit 13.2 is a memo from Bill Davis to all district and branch managers stating inter alia that:

"Many of these properties are a joke. You would not live in them... If you can't see yourself living in this house, don't make it!"

    It's CitiFinancial's supposedly objective credit criteria that are, to paraphrase the memo, "a joke." ICP requests that the Fair Housing Act implications of this memo and policy be reviewed and acted on, forthwith.

    CitiFinancial's historic lackadaisical approach to compliance is demonstrated by Exhibit 13.3 hereto, a memo to all branch managers stating that "I have received some of the mouse pads from American Health and Life and am sending a couple for each Branch. This, of course, satisfied all compliance issues." Note again the sworn affidavit in the FTC case against Citigroup regarding CitiFinancial instructions to hide the mouse pads from examiners.

    That the purported reforms Citigroup has announced since acquiring Associates are of only dubious benefit to consumer is demonstrated by Exhibit 13.4, annexed hereto. This is a post-Associates memo to all CitiFinancial District and Regional Managers, explaining how calculations of bonuses will be made following the "reforms:"

"Instead of comparing single premium to volume on all Equity-Plus loans, we will not compare the ratio of the incremental increase in the customer's monthly payment (due to the sale of all credit insurance) to the customer's overall monthly payment... Our new measure may be calculated by dividing the $23.64 increase in the customer's payment by the $189.16 payment, and then multiplying by 100... we can measure the increase in the customer's payment for either method, and hence the change in criteria."

     Less than two weeks after this memo, attached at Exhibit 13.5 is a sample CitiFinancial "Daily Planner," including the notation to "focus on three things: Making loans, selling insurance and Home & Auto, and collect (cure them)... Let's not leave ROCOPOLY $$ on the table." Emphasis added. ICP has documented that CitiFinancial's ROCopoly compensation system encourages the same of credit insurance regardless of whether it would benefit the customer, and without disclosure to the customer. As demonstrated by the previously-submitted ICP Exhibit 12.1, CitiFinancial is now, during the pendency of this application, seeking to re-conceal its actual policies and practices. Investigation, referrals and denial of these Citigroup expansion applications are required.

     (3) The scandals that continue to gather around Citigroup provide a separate basis for both the (still-) requested hearing and for the denial of this Citigroup expansion application, under the BHC Act's managerial resources factor and otherwise. For the record, the American Banker of August 16, 2002 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of August 12, 2002: On a hot issue of this this proceeding -- the examination of CitiFinancial that the Federal Reserve promised in July 2001 -- the Fed last week denied Inner City Press access to fully "eight linear feet of documents" concerning the exam. ICP has requested the documents in a Freedom of Information Act request in July, citing to evidence that CitiFinancial employees have be directed to destroy evidence before examiners arrive. The Fed nonetheless withheld all records about the exam. On August 12, ICP submitted a supplemental comment and additional exhibits to the Fed; the comment is summarized below.

                                                                                             August 12, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's twelfth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a twelfth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

     While we continue to await the "eight linear feet of documents" that the FRB is withholding regarding its examination of CitiFinancial (see infra), we wish to bring to the Board's attention recent actions of CitiFinancial and Citigroup "responsive" to the issues ICP and other have raised. ICP has documented that CitiFinancial's ROCopoly compensation system encourages the same of credit insurance regardless of whether it would benefit the customer, and without disclosure to the customer. Annexed hereto as Exhibit 12.1 is a memorandum to all CitiFinancial branch managers in Tennessee, during this proceeding, from Regional Manager David Baer, stating

Accompanying this memo are several items: a sealed envelope addressed to each employee in your branch containing the 3rd Quarter ROCopoly program parameters and a reprint from the 2002 Employee Handbook regarding the CitiFinancial Principles of Employment; Notice of Confidentiality for yourself and each employee in your branch.

After signing the Notice of Confidentiality, each employee will be given his or her sealed envelope. If an employee is absent on the day you hand these out secure their signature on their return and give them the sealed envelope. In no case should you allow a third party (other than your district manager) to handle this for you. Envelopes must be given only to the addressee. If any employee is no longer with the company, please return the envelope, unopened to my office. Please note that the ROCopoly program is clearly marked "Company Confidential. Do not copy" and "Not for public distribution." Please remind each employee of this as you make the distribution.

   ICP has noted that, in light of the CitiFinancial documents ICP has submitted to the FRB in this proceeding, Citigroup's response has been to browbeat its employees and threaten retaliation. It's gotten worse:

    On July 3, 2002, an employee of CitiFinancial's office in Morristown, TN was suspended without cause and the locks on the office were changed. The office was closed on July 8 and 9 and remaining employees browbeaten. District Manager Nancy Neel was observed taken cartons of documents from the Morristown office to CitiFinancial's Jefferson City, TN office, where the documents were shredded while Jefferson City employees were told not to look.

   Since then, CitiFinancial's local outside counsel has engaged in questioning explicitly about documents that ICP has submitted to the FRB; employees have been threatened with "criminal prosecution," etc.. The FRB should inquire into these matter forthwith; this is a comment made in extraordinary circumstances (and see infra) and should be made part of the record before the Governors.

    On July 11, 2002, ICP requested from the FRB inter alia "all records related to the examination of CitiFinancial to which the Board committed itself in its Citigroup - EAB Order in mid-2001." The Order stated:

the Board will conduct a thorough examination to assess the effectiveness of that implementation at Citigroup's subprime affiliates, CitiFinancial and CitiFinancial Mortgage... The Board also will consider any information gathered in these reports or the examination in reviewing future proposals by Citigroup... --Board Order of July 2, 2001

    The Secretary's determination letter of July 26, 2002 (the "Denial") states that "[a]pproximately 8 linear feet of documents will be withheld from you in their entirety." Not a single document ever referencing the above-promised examination of CitiFinancial has been provided to ICP or the public.

    ICP contends that it is contrary to FOIA and to public policy to withheld all of this information. In light of issues that have arisen, including a sworn statement by a CitiFinancial employee submitted in Federal Trade Commission v. Citigroup, Inc., et al., stating that she was ordered to hide documents from the banking regulators, records concerning the FRS' above-referenced examination of CitiFinancial should be released, and comment allowed thereon.

     ICP is also explicitly appealing from the extensive redactions to the FRB staff memo dated June 26, 2002, addressed to general counsel Virgil Mattingly. The redacted memo recites that the Office of Thrift Supervision ("OTS") had received more requests for a hearing on the transaction that the Fed had, as of June 26. The staffers note that "Citigroup has indicated its willingness to participate in the OTS meeting;" a full paragraph of the memo is then whited-out. Note that Citigroup had no choice: the OTS had ordered the formal meeting, under its regulations, and Citigroup had to attend. The staffers go on: "The commenters' justification for a hearing relate primarily to the subprime lending and related credit insurance activities of CitiFinancial, Inc., a nonbanking subsidiary of Citigroup that is not regulated by the OTS." After that, pages 4 through 7 of the memo are withheld. ICP is appealing; ICP is also appealing the withholding of Citigroup's list of possible branch closures, and all other redactions to Citigroup's submissions including its responses to the FRB's Additional Information letters.

    The scandals that continue to gather around Citigroup provide a separate basis for both the (still-) requested hearing and for the denial of this Citigroup expansion application, under the BHC Act's managerial resources factor and otherwise. For the record, Agence France Press' AFX European Focus of August 9, 2002 [snip]

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of August 5, 2002: Questions have mounted: how could the Federal Reserve (and OTS and FDIC) approve this Citigroup expansion application given the growing scandal around Citigroup's dealings with Enron, to say nothing of the revelations in this proceeding regarding predatory lending at CitiFinancial? On August 5, ICP submitted a supplemental comment and additional exhibits to the Fed; the comment is summarized below.

                                                                                             August 5, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's eleventh comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is an eleventh comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    While we continue to await the FRB's needed clarification questions regarding Citi's July 17 response, and rulings on our challenges to Citigroup's overbroad requests for confidential treatment for its July 29 and July 17 submissions, under the Freedom of Information Act ("FOIA") and the FRB's ex parte rules, a focus of this eleventh supplemental comment is on the ever-more widely reported systemic problems with Citigroup's management and oversight system, which call into question both Citigroup's "managerial resources" for its Golden State proposal, and its eligibility for continuing Gramm-Leach-Bliley Act ("GLB") powers. See infra.

   First, however, we must note for the record certain inaccuracies and inappropriate withholdings in Citigroup's July 29 submission (hereinbelow, the "Resp."). On page 1 of its Resp., Citigroup refers to "Confidential" Exhibit NN, "Insurance Sales Policy." The FRB's July 23 Question 1 asked whether "[d]uring any time in 2001 and 2002, have personnel at any of CitiFinancial's branches engaged in any of the following acts: (a) presented loan documents at closing with insurance or protection plan products and premiums included in the loan payment calculation without the customer's express agreement in advance of the closing to purchase and/or finance the insurance or protection plan products...".

  Citigroup responds that "[e]ngaging in any of the acts listed in Item 1 would be a violation of CitiFinancial polices and procedures." Resp. at 1.

    But ICP's Exhibit 7.3, an internal CitiFinancial document that is a script provided to employees, "Ideas for Improving Sales," states at bullet point 2:

"Ask 'What kind of payment do you feel comfortable with?' Then develop a protected loan to fit the need. THIS ONE PHRASE WILL IMPROVE SALES ENORMOUSLY." (Capitalization in original).

   If a CitiFinancial employee follows this CitiFinancial training document, the employee will routinely "present[] loan documents at closing with insurance or protection plan products... without the customer's express agreement in advance of the closing" -- the employees are being told to ask "how much can you pay," and then design a product with insurance (which has not been requested.)

    So on the one hand CitiFinancial tells its employees to include insurance in the loan documents without getting the customers consent; on the other hand Citigroup tells the Fed that such a practice would "violate CitiFinancial policies and procedures."

   The same CitiFinancial training document tells employees "Don't over disclose. AN INDICATION THE EMPLOYEE DOES NOT BELIEVE IN THE PRODUCT." An aside: ICP has been informed by a long-time CitiFinancial employee of a disciplinary meeting between a CitiFinancial branch manager who declined to force-place insurance on personal loans and a higher-up who shouted, "You're not been paid to believe in the product -- you're being paid to sell it!" And if the branch manager did not aggressively pack this insurance into loan, not only would they not receive a bonus, they would be fired (which subsequently took place.) ICP also contests the extensive redactions to pages 2 - 5 of the Resp., purportedly responding to FRB 7/23 Question 1 about insurance sales.

    Citigroup attempts to confine the entirety of its response to FRB 7/23 Question 2 (communications with state regulators) to "Confidential" Exhibit VV. No attempt was made to distinguish between communications that are already public and those that are not, nor to provide reasonably segregable portions of the latter. Citigroup's withholdings are in bad faith: the comment period must be extended, the documents provided and comment allowed thereon.

   ICP contests Citigroup's redaction of what percent of its personal loans were "secured" by household goods or other items (page 5 of the Resp.) and the extensive redactions to page 5 - 10 responding to the FRB's questions about household goods, insurance, valuation and repossession. ICP has put into evidence a CitiFinancial document showing household goods, including hand tools and an electric typewriter, re-valued upwards by 100% simply to sell more insurance, and CitiFinancial instructions to employees to ask for property lists in every instance, and to presumptively sell insurance on such property, without the customers consent. Citigroup has requested, and ICP in a July 31 request under FOIA and the ex parte rules opposed, confidential treatment for "Confidential" Exhibit CC, purportedly addressing collateral and its valuation, and "Confidential" Exhibit EE, purportedly concerning CitiFinancial's filings of UCC liens on household goods. ICP has submitted a Maesto computer system print out of a loan that required reapproval after the customer declined insurance. Citigroup's Response is apparently to the contrary: ICP should be provided with the entirety of Citigroup's response, under FOIA, the ex parte rules and otherwise.

   Regarding CitiFinancial's "heads-up" of its "mystery" shopping -- on which ICP submitted a memo subsequently reported in the American Banker (6/24/02) and Wall Street Journal (7/18/02) -- Citigroup redacts the bottom of page 10, all of page 11, and half of page 12. ICP contests this (and notes that Barry Leeds Associates, identified as the tester on page 10, was quoted in the American Banker of June 24, 2002, as declining to "comment on whether [Barry Leeds] was involved in the late-2000 mystery-shopping tests").

   Regarding the "Graduation Loan Program," Citigroup alludes in its response to "Confidential" Exhibits GG and HH, both of which ICP requests. ICP is also requesting "Confidential" Exhibit II and JJ (regarding CitiMortgage's prime loans), KK and LL (regarding the foreclosure review process about which Citigroup has made public claims), and the material redacted on page 23.

    Perhaps most outrageously, in response to the FRB's 7/23 Question 11 regarding "nondisparagement" agreements -- which ICP has called gag orders -- Citigroup has redacted its entire response. ICP has commented that ex-CitiFinancial employees have been threatened with litigation for whistleblowing, that current employees have recently been browbeating about the release of internal CitiFinancial scripts that contradict Citigroup's representations to the FRB, etc.. In July 2001 Citigroup's spokeswoman Leah Johnson told reporters that

Our severance agreements, like those of most companies, include a standard non-disparagement clause. Because of our desire to assure that our stringent standards of conduct are upheld, such clauses at CitiFinancial never apply to employees bringing any concerns about illegal or unethical activity they believe they have witnessed to the appropriate authorities inside and outside the company. -- see Reuters of 7/27/01

    Now Citigroup seeks across the board confidential treatment for its entire response on this issue. A sample CitiFinancial gag order is already public, as ICP put it into the record before the FRB. ICP contests the redaction in full of Citigroup's response to FRB 7/23 Question 11, and the withholding of any exhibits referred to in the redacted text. ICP also contests the redactions on page 26 (re Banamex).

   FRB 7/23 Question 16 asks for data on Citigroup's subprime lending in 2001 and 2002. Citigroup's response says only, "See Confidential Exhibit UU." But 2001 LAR data is already public -- in fact, Citigroup's First "Omnibus" Response chided ICP for not using this 2001 data. Accordingly it is ludicrous to request confidential treatment for the entirety of Citigroup's response to FRB 7/23 Question 16. Citigroup's requests for confidential treatment have been in bad faith; the comment period must be extended, the improperly withheld material provided and comment allowed thereon.

     Certain additional exhibits, and an indicative tale: Citigroup has previously claimed that, for example, the 7500 Club is not a CitiFinancial incentive program. Annexed hereto as Exhibit 11.1 is a document reflecting another de facto CitiFinancial incentive program: a contest to see which group of branches can sell the most personal loans and insurance policies. Employees pack insurance because they are told and compensated to do so; CitiFinancial must be held to account for this.

    In light of ICP's previous timely comment regarding CitiFinancial customers lent to at 14.5% interest, then offering 10% interest as soon as they find a better deal (indicating the arbitrary nature of CitiFinancial's pricing), annexed hereto as Exhibit 11.2 is an internal "Pricing Matrix" regarding which the FRB should ask Citigroup questions (including, for example, whether customers are offered the lowest price to which the matrix entitles them: our experience is, "no").

    Earlier in this proceeding, Citigroup stated that after reviewing a loan described by ICP, an insurance premium was refunded. Citigroup has not identified the loan. Here's a recent tale: then-Branch (now District) Manager Robert Knight was responsible for a CitiFinancial loan in April 2002. The customer moved to cancel the credit insurance. There was a copy of the cancellation letter in the loan file, but CitiFinancial did not cancel the insurance. Finally in late June 2002 CitiFinancial cancelled the insurance but never refunded the customer over $300 that were due. The customer noticed all this in connection with paying off the CitiFinancial loan at the end of July 2002. No disciplinary action was taken -- in fact, the manager who closed the loan, Robert Knight has been promoted to district manager. See Exhibit 11.3 hereto, a CitiFinancial e-mail to "District Managers" including Robert Knight. Our point: CitiFinancial encourages employees to pack insurance; even when they are "caught," nothing is done. This is contrary to Citigroup's CEO's previously quoted July 25, 2002, statement that "If we find that anyone in our company has done anything wrong or fails to abide by our professional standards, we will take all appropriate actions swiftly." Note that, even as contrasted to the CitiFinancial South Carolina situations documented to the FRB in 2001, here, based on ICP's eight sets of exhibits, not a single disciplinary action has apparently been taken, despite "mystery" shopping tip-off memos, purportedly unauthorized incentive programs like "the 7500 Club," at least one refunded insurance premium, and widely disseminated training scripts that totally contradict Citigroup's public statements (and statements to the FRB) about CitiFinancial, etc.. This application should be denied, on the grounds set forth above as well as those below...

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of August 1, 2002: Citigroup has turned in a response to the Federal Reserve's 18 questions of July 23, 2002. Citigroup has redacted and requested confidential treatment for the majority of its responses. Even the information left in the "public version" is, when compared to the CitiFinancial documents ICP has put into the record, blatantly inaccurate and misleading. Some examples:

   The Fed's July 23 Question 1 asked whether "[d]uring any time in 2001 and 2002, have personnel at any of CitiFinancial's branches engaged in any of the following acts: (a) presented loan documents at closing with insurance or protection plan products and premiums included in the loan payment calculation without the customer's express agreement in advance of the closing to purchase and/or finance the insurance or protection plan products...".

   Citigroup responds that "[e]ngaging in any of the acts listed in Item 1 would be a violation of CitiFinancial polices and procedures."

   But ICP's Exhibit 7.3, an internal CitiFinancial document that is a script provided to employees, "Ideas for Improving Sales," states at bullet point 2:

"Ask 'What kind of payment do you feel comfortable with?' Then develop a protected loan to fit the need. THIS ONE PHRASE WILL IMPROVE SALES ENORMOUSLY." (Capitalization in original).

    If a CitiFinancial employee follows this CitiFinancial training document, the employee will routinely "present[] loan documents at closing with insurance or protection plan products... without the customer's express agreement in advance of the closing" -- the employees are being told to ask "how much can you pay," and then design a product with insurance (which has not been requested.)

   So on the one hand CitiFinancial tells its employees to include insurance in the loan documents without getting the customers consent; on the other hand Citigroup tells the Fed that such a practice would "violate CitiFinancial policies and procedures."

   The same CitiFinancial training document tells employees "Don't over disclose. AN INDICATION THE EMPLOYEE DOES NOT BELIEVE IN THE PRODUCT." An aside: ICP has been informed by a long-time CitiFinancial employee of a disciplinary meeting between a CitiFinancial branch manager who declined to force-place insurance on personal loans and a higher-up who shouted, "You're not been paid to believe in the product -- you're being paid to sell it!" And if the branch manager did not aggressively pack this insurance into loan, not only would they not receive a bonus, they would be fired (which subsequently took place.)

   Citigroup goes on to extensively redact pages 2 - 5 of its Response, purportedly responding to Fed's 7/23 Question 1 about insurance sales.

   Citigroup attempts to confine the entirety of its response to Fed 7/23 Question 2 (communications with state regulators) to "Confidential" Exhibit VV. No attempt was made to distinguish between communications that are already public and those that are not, nor to provide reasonably segregable portions of the latter. Citigroup's withholdings are in bad faith.

   ICP has now contested to the Fed Citigroup's redaction of what percent of its personal loans were "secured" by household goods or other items, and the extensive redactions to page 5 - 10 responding to the Fed's questions about household goods, insurance, valuation and repossession. ICP has put into evidence a CitiFinancial document showing household goods, including hand tools and an electric typewriter, re-valued upwards by 100% simply to sell more insurance, and CitiFinancial instructions to employees to ask for property lists in every instance, and to presumptively sell insurance on such property, without the customers consent. Citigroup has requested, and ICP has now opposed, confidential treatment for "Confidential" Exhibit CC, purportedly addressing collateral and its valuation, and "Confidential" Exhibit EE, purportedly concerning CitiFinancial's filings of UCC liens on household goods. ICP has submitted a Maestro computer system print out of a loan that required reapproval after the customer declined insurance. Citigroup's Response is apparently to the contrary: ICP has informed the Fed that it should be provided with the entirety of Citigroup's response, under FOIA, the Fed's ex parte rules and otherwise.

    Regarding CitiFinancial's "heads-up" of its "mystery" shopping -- on which ICP submitted a memo subsequently reported in the American Banker (6/24/02) and Wall Street Journal (7/18/02) -- Citigroup redacts the bottom of page 10, all of page 11, and half of page 12. Barry Leeds Associates, identified as the tester on page 10, was quoted in the American Banker of June 24, 2002, as declining to "comment on whether [Barry Leeds] was involved in the late-2000 mystery-shopping tests."

    Regarding the "Graduation Loan Program," Citigroup alludes in its response to "Confidential" Exhibits GG and HH, both of which ICP has now requested. ICP has also requested "Confidential" Exhibit II and JJ (regarding CitiMortgage's prime loans), KK and LL (regarding the foreclosure review process about which Citigroup has made public claims), and the material redacted on page 23.

   Most outrageously, in response to the Fed's 7/23 Question 11 regarding "nondisparagement" agreements -- which ICP has called gag orders -- Citigroup has redacted its entire response. ICP has commented that ex-CitiFinancial employees have been threatened with litigation for whistleblowing, that current employees have recently been browbeating about the release of internal CitiFinancial scripts that contradict Citigroup's representations to the FRB, etc.. In July 2001 Citigroup's spokeswoman Leah Johnson told reporters that

Our severance agreements, like those of most companies, include a standard non-disparagement clause. Because of our desire to assure that our stringent standards of conduct are upheld, such clauses at CitiFinancial never apply to employees bringing any concerns about illegal or unethical activity they believe they have witnessed to the appropriate authorities inside and outside the company. -- see Reuters of 7/27/01

   Now Citigroup seeks across the board confidential treatment for its entire response on this issue. A sample CitiFinancial gag order is already public, as ICP put it into the record before the Fed. ICP has also contested the redactions on page 26 (re Banamex).

    The Fed's 7/23 Question 16 asked for data on Citigroup's subprime lending in 2001 and 2002. Citigroup's response says only, "See Confidential Exhibit UU." But 2001 Loan Application Register (LAR) data is already public -- in fact, Citigroup's First "Omnibus" Response chided ICP for not using this 2001 data. So it's ludicrous to request confidential treatment for the entirety of Citigroup's response to Fed 7/23 Question 16. Citigroup's requests for confidential treatment have been in bad faith. ICP has informed the Fed: the comment period must be extended, the improperly withheld material provided and comment allowed thereon.

Update of July 29, 2002: While Citigroup's practices are now in the spotlight, from Congress to the regulators to the mainstream financial press, the Fed has yet to ask Citigroup about its involvement with Enron and WorldCom, in connection with Citigroup's Cal Fed application. ICP has submitted a July 29 comment inquiring into this and other matters. ICP's July 29 comment is summarized below. 

                                                                                             July 29, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's tenth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a tenth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    While we continue to await receipt of Citigroup's full response to the FRB's July 3 Additional Information ("AI") questions, and Citi's response to the FRB's more recent July 23 AI questions (as well as the FRB's needed clarification questions regarding Citi's incomplete July 17 response), the focus of this interim supplemental comment is on the now widely reported systemic problems with Citigroup's management and oversight system, which call into question both Citigroup's "managerial resources" for its Golden State proposal, and its eligibility for continuing Gramm-Leach-Bliley Act ("GLB") powers.

     ...Clearly, the FRB should obtain a copy of Citigroup's CEO's response and make it part of the record in this proceeding. In the FRB AI questions sent to ICP under the FRB's ex parte rules, NO questions have been asked about Enron, or WorldCom, or the other scandals how swirling around Citigroup. As recited in an FRB Legal Division e-mail of June 4, 2002, regarding this proceeding:

"Today, the Board received the first comment on this notice. The comment is from Inner City Press. Although I'm sure we all remember, this is to remind everyone that our internal processing of this notice is now subject to the Board's policy on ex parte communications with notificants. Given the high public profile of this deal it is particularly important that we adhere to proper procedures in this case at all time... Any communications with Citigroup on these matters should therefore be in writing, however inconvenient this may seem. If you feel that you absolutely, positively have to talk to Citigroup about a matter raised in a protest, please do not do so without someone from Board Legal on the phone. (Any oral ex parte discussions will have to be summarized in a memo that can be made public.)"

     ICP's very first comment on Citigroup's Golden State applications, dated June 3, 2002, raised Citigroup's involvement in the Enron scandal as grounds to deny Citi's application. This triggered the FRB's ex parte rules. While it is possible that the "confidential questions" alluded to in the FRB's July 23 AI letter concern these matters, it is illegitimate and contrary to public policy to withhold from the public all of the FRB's questions on these matters....

     For the record, and in light of Fed Chairman Greenspan's letter earlier this year to Rep. LaFalce that the Fed has the power to deem particular practices unfair and deceptive, ICP hereby formally asks the FRB to deem these CitiFinancial practices unfair and deceptive.

    Frankly, the FRB's Citigroup-Golden State proceeding gets crazier, more arbitrary and overly applicant-friendly, all the time. While Citigroup has still not finished answering the FRB's questions of July 3, the FRB on July 24 wrote that the public comment period won't be extended. ICP hereby requests for that decision to be reconsidered, and that this request for reconsideration be presented forthwith to the Governors.

     In previous FRB proceedings, when an applicant has, during the comment period, withheld from commenters information to which they are entitled, the comment period has been extended. This is consistent with the practice of the OCC, which extends comment periods when an applicant has made an inappropriate request for confidential treatment. Here, the FRB has still not ruled on Citigroup's absurdly-broad request for confidential treatment for its submission of July 17 (that is, within the comment period). Perhaps even more dispositive (and certainly more inexplicable), the list of litigation against CitiFinancial which Citigroup was supposed to submit in late June (that is, within even the initial comment period) was, in fact, only submitted on July 12 (still within the extended comment period). [FN: That the litigation list that Citigroup submitted on July 12 is explicitly dated June 21, 2002 -- and that the non-confidentiality of just such a list was already ruled on by the FRB in 2001 in a Citi proceeding -- makes its withholding until after the comment period closed as the more inexplicable and indefensible]. But, despite the directive in the FRB's first AI letter, Citigroup did not send this litigation list to commenters. It was mailed out by the FRB staff on July 19: one day after the comment period closed. In this light, the comment period must be extended (and see supra -- this should be presented to the Governors now).

    Again we ask, where is this all going? It is up to the agencies, at this time. The agencies can either coddle Citigroup, allowing late and blatantly inaccurate responses but nevertheless closing comment periods, or they can do what the law requires.

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of July 24-25, 2002: the Federal Reserve Board has asked Citigroup eighteen more questions about its subprime lending and CRA record -- including, at last, detailed questions about insurance CitiFinancial sells on "household goods" such as ice chests and lawn mowers and leaf blowers, CitiFinancial's "gag orders" on its employees, its arrogant non-responses to and deception of state regulators, and its staged "mystery" shopping -- each of which has been documented into the record by ICP.

     The Fed's July 23 Additional Information letter, which the Fed faxed to ICP after 5 p.m. on July 24, begins by stating: "Based upon a review of the record, the following additional information is needed. Your response dated July 17, 2002, to my letter of July 3 requesting additional information is still under review. Therefore, the information requested in this letter does not address any clarifications concerning the July 17 submission that may be needed....". So there may and should be more questions forthcoming. Also, Citigroup has still not responded to some of the Fed's July 3 comments. The Fed gave Citigroup an extension -- while it remains silent on community groups' related requests for an extension of the comment period. Here are some of the Fed's July 23 questions, followed by brief citations to exhibits that ICP submitted into the record between July 3 and July 18:

"Identify the total number and percentage of CitiFinancial personal loans (not including sales finance, credit card or automobile purchase loans) in each of 2001 and the first six months of 2002 that were secured by household goods or other items, not including autos or real estate (collectively, 'household goods'). Explain in detail the following: (a) how loans collateralized or secured by household goods differ from unsecured personal loans, including but not limited to the differences in interest rates or other charges on the loans and the purposes or functions of the collateral; (b) how the CitiFinancial customer service representatives or other personnel determine which household goods are to be used as collateral and how information on possible collateral is obtained; (c) how personnel determine the value of household goods as collateral for personal loans; and (d) what training all CitiFinancial personnel receive in connection with such valuation of household goods. Provide copies of all CitiFinancial guidelines, policies, procedures, and training and sales / marketing materials related to collateral or security for personal loans and collateral valuation."

     Note: ICP's Exhibit 13 showed a CitiFinancial "property list" reflecting CitiFinancial taking a security interest in fishing rods and an ice chest, and selling insurance thereon. In terms of "valuation," ICP's Exhibit 12 showed CitiFinancial, in connection with flipping a loan, "re-valuing" a sewing machine from $500 to $1,000, an electric typewriting from $150 to $200 and hand tools from $500 to $1000. The valuations were entirely arbitrary; the reason CitiFinancial takes property lists is to sell insurance thereon, see below.

"Provide the number and percentage of CitiFinancial's secured personal loans (not including sales finance or auto purchase loans), in each of 2001 and the first six months of 2002, for which CitiFinancial completed UCC filings in connection with the household goods serving as collateral for the loans. Also, provide the number of defaulted CitiFinancial loans during these time periods that resulted in CitiFinancial repossessing the household goods that secured or collateralized the loans. Explain in detail CitiFinancial's policy on repossession of such goods in the case of borrower default on the personal loan, and provide copies of all CitiFinancial's related policies and procedures."

    NOTE: Current and former CitiFinancial employees have told ICP that the only reason CitiFinancial takes property lists is to sell insurance on them. The Wall Street Journal of July 18 reported: [snip]

      ICP commented to the Fed on July 18 about this just-quoted CitiFinancial statement, and on the underlying practice: "Citigroup admits that its purpose in routinely and systematically obtaining (requiring) 'property lists' is not to secure the loans. It is clear to ICP, and numerous informed sources have confirmed, that the purpose is to sell credit insurance, that has no value to the customer, by Citigroup's own concession. Ajay Banga's statement that the purpose is 'to make the borrower more responsible for paying the loan back' is ludicrous, and a significant admission in light of the fact that CitiFinancial routinely and systematically sells (packs) insurance on these items (as ICP has documented, ice chests, fishing rods, CD collections, and, yes, leaf-blowers). These practices are beneath contempt; they are predatory; they require the denial of Citigroup's applications." ICP's timely comment of July 18, 2002.

"Discuss whether CitiFinancial requires property insurance (or a property protection plan) in connection with loans secured by household goods or autos securing personal loans (not including auto purchase loans). Whether or not such insurance or protection plan is required, explain in detail how the coverage amount of the insurance or protection plan is determined and how the coverage is priced."

    NOTE: ICP's Exhibit 7.3 is an internal CitiFinancial training document stating, among other things, that "We are a secured lender. Ask for collateral. Update property lists on every loan. We can write PPI [insurance] on the total of payments." The document also instructs CitiFinancial employees: "Don't over disclose."

"Provide copies of all versions of CitiFinancial employee contracts or other agreements with employees (at the beginning of employment, during employment, and on termination of employment) that contain non-disparagement clauses or other forms of nondisclosure provisions, which were used during any time in 2001 and 2002."

     NOTE: ICP has submitted to the Federal Reserve a copy of a non-disparagement agreement that CitiFinancial required employees to sign in June 2001 in order to obtain their final employment payment. This CitiFinancial contract, on which Citi late threatened to sue, at Paragraph 5 requires the employee to agree that he or she "will not make any statements to any person regarding the Company and its agents of a derogatory nature or which disparage the reputation, business or integrity of the Company or any of the executives or employees of the Company." This was and is an outrageous provision and, as noted, employees who signed it were subsequently brow-beating by Citigroup's DC-based outside counsel, were asked about providing information to Inner City Press, and were threatened with a lawsuit for damages under the provision. How's that for (no) "whistleblower" protections?

"During any time in 2001 and 2002, have personnel at any of CitiFinancial's branches engaged in any of the following acts: (a) presented loan documents at closing with insurance or protection plan products and premiums included in the loan payment calculation without the customer's express agreement in advance of the closing to purchase and/or finance the insurance or protection plan products; (b) told customers (before, during or after loan closing) that credit or protection plan insurance is required to obtain the loan; (c) failed to disclose (before, during or after loan closing) that the purchase of insurance or protection plan products is optional; (d) required that a loan be repriced and reapproved (loan amount and/or other terms) when the customer declined (before or during loan closing) to purchase and/or finance an insurance or protection plan?"

    NOTE: ICP's Exhibit 4.2 is a print-out of CitiFinancial's "Maestro" computer system reciting that when the customer complained that he didn't want "prop protection" insurance, the CitiFinancial employee "had to back off and when I did, it automatically... needed reapproval." The practices inquired into by the Fed's above-quoted question take place systemically throughout CitiFinancial, in large part due to the ROCopoly compensation scheme, which requires employees to hit "qualifying" levels of insurance sales to receive a bonus. District and Regional managers do not receive bonuses unless the offices under their control hit "qualifying" (or in some cases "superior") levels of insurance sales.

"Provide copies of all communications between CitiFinancial (or any of its affiliates) and state regulatory agencies or state attorney general offices (collectively 'state officials') during 2001 and 2002 regarding any concerns or questions of the state officials about:

(i) the lending and marketing practices of CitiFinancial, Primerica Financial Services (including its agents), Travelers Bank and Trust, fsb, or any of these entities' affiliates; or

(ii) the sales of insurance or protection plan products by any of these entities or their affiliates in connection with the lending activities of any of these entities or their affiliates (including the activities of their personnel or agents)."

    NOTE: ICP's Exhibit 6.5 is a chain of correspondence between the Tennessee Department of Commerce and Insurance, Consumer Insurance Services unit, in which CitiFinancial declined for three months to answer the state regulator's question, based on a consumer complaint, about credit life insurance sales practices.

"Provide updates for Citibank, N.A., New York, New York ('Citibank'), and Citibank (New York State), Pittsford, New York ('Citibank (NYS)'), on their community development lending, investment, and service activities since their most recent CRA performance evaluations..."

    NOTE: Citigroup previously made a New York State lending commitment, required by the New York Banking Department to bring Citigroup's prime lending in "majority-minority" census tracts up to the level of other banks. Citigroup "gamed" this commitment by complying with a slew of small $1,000 loans which it called mortgages although it never filed a lien against the properties. Question: beyond the predatory lending issues, how credible is Citigroup's "new" California / Nevada lending commitment, announced after close of business on July 3, 2002?

    NOTE: It has come out in this proceeding that Citigroup's so-called "Real Estate Lending Initiatives," which Citi presented to the Fed and other regulators and on which these regulators conditioned their previous Citi approvals, did NOT apply to all of CitiFinancial's real-estate loans. Citigroup's July 17 (partial) response to the Fed's July 3 questions admitted that two of the "real estate lending reforms," prepayment penalty choice and Rate Reduction Plan, did NOT apply to EquityPlus real estate-secured loans... The CitiFinancial memo that ICP put into the record as ICP Exh. 3 informed CitiFinancial regional managers and branches that "we will begin a Mystery Shopping Test in December and complete in January. This will happen in two ways -- Telephone: the test is do we service every customer consistently, i.e. do we quote the same rates, LTVs, etc.? Are we consistent? Branch visits: A minority and a caucasian will visit the same or separate branches and request an identical loan. The test is do we quote the same rate, LTV, etc. and de we give equal service to each?" Emphasis added. Clearly, back-to-back visits by a "minority and a caucasian" [sic] requesting exactly the same loan is calculated to alert the CitiFinancial employees that this is a test, a process which will "complete in January."

     Citigroup has variously gamed and/or not complied with its previously announced "reforms," which in any event only even purportedly applied to one part of CitiFinancial's subprime loans. Citigroup uses "personal" loans as an opportunity to require property lists, mis-value them and sell insurance on them, then "upsell" the customer into a high-rate home-secured loan that the customer never initially requested. The same process happens with CitiFinancial's sales finance loans; CitiFinancial employees' compensation rides on forced-placed ("packed") insurance, on upselling and otherwise gouging each customer to the maximum extent. Within CitiFinancial this is called "maxing out," and employees who do not do so are penalized. Those employees who complain are terminated and/or threatened with litigation. So what will happen now?

    The Fed's letter concludes: "Please respond to the confidential information request in the Confidential Exhibit attached. [ICP NOTE: Could it at least be re Enron and WorldCom? One would hope that the Fed is asking]. Please send an original and ten copies of your response... by no later than August 2, 2002.... In addition, please send a copy of the non-confidential portion of your response to the commenters... "

Update of July 22, 2002: On July 19, Citigroup provided ICP with a copy of its grandiosely entitled "Second Omnibus Response." It blatantly dodged the issues; even so, it stated that "[f]or personal loans, single premium credit insurance can be a valuable product, which many of Citigroup's customers choose to purchase." So, as ICP had previously shown, CitiFinancial continues selling single premium credit insurance -- on personal loans, with the same argument it made while defending the product with respect to real estate loans. These issues, combined with Citigroup's upcoming Enron testimony and the WorldCom-related lawsuit filed against Citi last week have led ICP to ask the Federal Reserve to strip Citigroup of its "Gramm-Leach-Bliley Act" powers, or at least to curtail them as the Fed did last week with PNC. ICP's July 22 comment is summarized below. 

                                                                                             July 22, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's ninth comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a ninth comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

   On Friday, July 19, after the stated expiration of the comment period, ICP received from Citigroup a copy of its "Second Omnibus Response." Citigroup's "First Omnibus," dated July 3, had stated at 18 that "[a]dditional materials have been provided by Inner City Press in its filings dated June 24 and June 30, 2002... CitiFinancial is in the process of reviewing these materials in the same fashion it reviewed the earlier materials that have been... filed with the banking agencies. To date, it does not appear that any of the materials that have been received reflect violations of policy or law."

   At the formal meeting on July 8, Citigroup's Marge Magner recited that "with respect to allegations in various documents regarding individual borrowers... which are been published by one commenter, these allegations were subject to review... the review identified only one issue and corrective actions was taken. Additional materials have been provided more recently by the same commenter. CitiFinancial's in the process of reviewing those materials in the same fashion it reviewed the earlier ones." Tr. at 210.

   More than two weeks after Citigroup's "First Omnibus," ten days after Ms. Magner's above-quoted statement, and more than three weeks after ICP timely submitted its June 24 exhibit -- Citigroup's Second and presumably final response says NOTHING about these exhibits. By Citigroup's own admission, previous ICP submission revealed violations (the specifics of which Citigroup has yet to disclose). In this light, Citigroup's blatant failure to address the exhibits to ICP's June 24 and 30 comments (and its July 15 and 18 comments) must be construed as an admission. On the current record, the agencies could not legitimately approve Citigroup's applications.

   On Tuesday, July 23, four senior Citigroup officials have been required to testify before the U.S. Senate's Permanent Subcommittee on Investigations: David C. Bushnell, managing director of "global risk management" at Citi's Salomon Smith Barney; James F. Reilly Jr., managing director of Salomon's global power and energy group; Richard Caplan, managing director of the Salomon's credit derivatives group; and Maureen Hendricks, a "senior advisory director" at Citi's Salomon in New York. See, e.g., American Banker of July 22, 2002. See also, N.Y. Times of July 18, 2002, at A1: "a handful of top executives at telecommunications companies received big allotments of hot new stocks from Salomon Smith Barney, according to a former broker who has filed a lawsuit accusing the firm of unfair business practices," etc..

   For the record, in light of these matters and the systemic predatory lending that has been documented, ICP is asserting that Citigroup Inc. is not "well managed" within the meaning of the Gramm-Leach-Bliley Act of 1999, and should be stripped of its powers as a financial holding company thereunder. At a minimum, the conditioned placed by the FRB on PNC Financial Services Group last week should be placed on Citigroup. [FN: In further support of this request: the New York Times of July 3, 2002, at A9, reported that Citigroup violated the rules of, and paid fines to, the Treasury Department's Office of Foreign Assets Control for violating sanctions on trade and investment].

   On July 18, ICP was forced to respond in less than four hours to Citigroup's much-redacted Response to the FRB's Additional Information ("AI") questions of July 3, 2002. ICP now wishes to express particularly outrage (on the "well managed" issue) at Citigroup's attempts to withhold in full its responses to FRB Questions 27-29, which relate to delinquencies, "curing" delinquencies and to what ICP (and numerous CitiFinancial employees) have referred to as distortion of delinquency. In response to FRB Question 27, Citigroup leaves in only four words: "See Confidential Exhibit U." For FRB Questions 28a-c, Citigroup says only that "Responses to Items 28a-c are provided at Confidential Exhibit X." Half a page responsive to FRB Question 28d is redacted, followed by the statement that "each RBO is also reviewed... Very few exceptions have been noted in past audits...". Resp. at 29. But ICP's Exhibit 5.6, submitted on June 30 and as-yet unresponded to by Citigroup (see supra) showed that for a single sample CitiFinancial branch in a single month, over THIRTY exceptions were found. Systemic distortion of reported delinquencies at CitiFinancial is an issue that goes beyond predatory lending: it is an accounting issue and must be resolved and acted on in this proceeding.

   An aside about audits: in the July 18 Wall St. Journal, Citigroup explains its firing of a former branch manager by stating that the individual "was fired for failing branch audit reviews." Note for the record, as relates to the FRB's AI Questions and Citigroup's Responses, that this individual was awarded a rating of 4, on a scale of 1 to 5 with 5 being the lowest. Note also that other CitiFinancial branch managers have been awarded the lowest rating, 5 -- and still remain in the employ of CitiFinancial, still interacting with customers and their loan documents and still, as acknowledged by Citigroup's Second Omnibus Response at 9, selling single premium credit insurance. [FN: Citigroup states that "single premium credit insurance can be a valuable product" -- but its Response to the FRB AI Letter stated that credit insurance is not sold in connection with Citigroup's (mostly) prime loans through CitiMortgage and Citibank].

   To FRB Question 29, Citigroup's entire Response, more than a page, has been redacted, followed by the statement that "[p]olicies and procedures for CFMC are included at Confidential Exhibit X." To FRB Question 30b, regarding "under reporting delinquencies," Citigroup redacts the entirety of its response. This is illegitimate, particularly in light of the delinquency / accounting issues raised.

   The FRB must forthwith review Citigroup's overbroad requests for confidential treatment for its responses to the FRB's AI Letter of July 3, in light of FOIA and the FRB's ex parte rules; the FRB must release all non-exempt information and extend the comment period. Furthermore, actions such as those taken with respect to PNC last week, and more, should be taken forthwith.

    Again we ask, where is this all going? It is up to the agencies, at this time. The agencies can either coddle Citigroup, allowing late and blatantly inaccurate responses but nevertheless closing comment periods, or they can do what the law requires.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of July 19, 2002:  Neat tricks of Citi -- after 5 p.m. on July 18 Inner City Press received a heavily redacted copy of Citigroup's response to the Federal Reserve Board's July 3 questions about subprime lending. The comment period was expiring, at least for now, at 6 p.m. PST (9 p.m. EST) on July 18. ICP reviewed Citigroup's response, which refers to 28 exhibits that are not provided, and to some future submission of further information about credit insurance, and timely put in the comment summarized below, to the Fed, OTS and FDIC. ICP also submitted a Freedom of Information Act request / appeal for the swaths of Citigroup's response that Citi's trying to withhold. Highlighted below is the fact that the mostly-prime rate CitiMortgage "does not offer credit life, disability and unemployment or similar credit insurance products to customers at or prior to the time of loan closing." Resp. at 11. This Citigroup sentence made plain the separate but unequal system in use within Citigroup. To CitiFinancial customers (whose demographics notably skew more toward the classes protected under the fair lending laws than do those of Citibank or CitiMortgage, see below), Citigroup aggressively sells credit and personal property insurance, resulting in higher payments. Often the insurance is of no benefit to the customer, as ICP has shown (with respect to ice chests and fishing rods and leaf blowers in CitiFinancial's property lists, and see WSJ of July 18, 2002). One proof that these products are of limited benefit to customers is that Citigroup does not sell or offer any of them to its prime customers... Also, Citigroup claims that if its district managers come up with their own ways to "incentivize" predatory lending, these are not "CitiFinancial" practices (although they sure add to Citigroup's profits, like those reported earlier this week). The issue of systemic distortion of delinquency within CitiFinancial, which sure seems related to Congressional inquiries into accounting issues, was hardly addressed in Citigroup's response at all...

                                                                                             July 18, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's eighth timely comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is an eighth timely comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    After 5 p.m. today ICP received from the FRB a heavily-redacted copy of Citigroup's Response to July 3 FRB Additional Information ("AI") Letter. Citigroup is seeking to withholding more than two dozen responsive exhibits, and as set forth below has explicitly not complied with the FRB's July 3 request for "needed" information. ICP has today submitted a request / appeal for the improperly withheld information, including under the Freedom of Information Act ("FOIA"). The comment period must be extended until Citigroup files the "amendment[s]" reference in its Response and until the improperly (and frivolously, see infra) withheld information is released. On the current record, Citigroup's applications could not legitimately be approved.

   In the absurdly limited time between receipt of the redacted Response and the current expiration of the comment period, ICP provides the following comments on those portions of Citigroup's Response which Citigroup has not withheld or redacted:

   Citigroup's Response to FRB Question 2b reveals that Citigroup's purported "Real Estate Lending" reforms have not been implemented on EquityPlus loans, which are without question "Real Estate" secured loans. (Citigroup acknowledges that it "takes and records a mortgage on the borrower's property," Resp. at 2). Inter alia, these CitiFinancial real estate loans do not including "prepayment penalty choice" nor "Rate Reduction Plan." Citigroup has misled the public and its regulators, including the FRB, regarding its so-called "Real Estate Lending" reforms, which the FRB relied on in its Citi-EAB and Citi-Banamex Orders.

   Regarding credit insurance sold (or packed) on its EquityPlus loans, Citigroup states that "Information regarding loans that involved insurance sales will be provided by amendment." Resp. at 3. This is a central issue in this proceeding (including as reflected by the FRB's July 3 Question 2) -- the comment period must be extended until Citigroup responds to the July 3 AI letter, which stated that "based on a review of the record, the following additional information is needed." Emphasis added. Also, ICP formally contests the withholding of "Confidential Exhibit G" (Resp. at 3), which concerns volumes of subprime EquityPlus loans.

   FRB Question 2d concerns these EquityPlus loans; Citigroup has sought to redact its entire response. Particularly in light of the issue of Citigroup have misled the FRB and the public, raised above, this new Citigroup representation must be released, and comment allowed thereon.

   FRB Question 3 concerned Citigroup's purported "Mystery" shopping. On June 3, ICP submitted an internal CitiFinancial memorandum which told employees that the "mystery" shopping would stop in January, and what was being tested for. Citigroup's Response dated July 17 baldly claims "No advance notice" (Resp. at 4), and then seeks confidential treatment for an "internal announcement" which would seem identical to ICP's already-public Exhibit 3. Once a document is public, there is no basis for seeking confidential treatment. If Citigroup's "Confidential" Exhibit I is different than ICP's Exh. 3, that's all the more reason to release it and allow comment thereon.

   ICP has shown the systematic pressure within CitiFinancial to turn sales finance contracts into CitiFinancial loan, finally real estate loans, with packed credit insurance and additional fees at each step. FRB Question 4 is for factual information about each step in this process and Citigroup's only public response is "See Confidential Exhibit J." This is both illegitimate (under FOIA and the FRB's ex parte rules) and troubling. The information must be released and comment allowed thereon.

   FRB Question 5 concerns safeguards against loan flipping. ICP has introduced evidence about CitiFinancial's "RBO" (refinance balance only) practices, and has shown that a single sample CitiFinancial branch recorded over 30 flipping violations in a single month. See ICP Exh. 5.6. Citigroup's Response prattles on about supposed safeguards, refers to "Confidential" Exhibits K and BB, and then redacts the final portion of the Response. This is both illegitimate (under FOIA and the FRB's ex parte rules) and troubling. The information must be released and comment allowed thereon.

    ICP has submitted documentation of how Citigroup compensates CitiFinancial employees, under the ROCopoly / QuikPlan system which measures and provides bonus points for raw insurance sales volume, including on real estate loans. Most recently, ICP has submitted CitiFinancial training documents which instruct employees to track their insurance sales daily and not "over disclose" (see Exhibits to ICP's Seventh Comment). FRB Question 6 requests information about compensation for insurance sales. Citigroup has left in only a single sentence ("There are two primary bonus programs for branch network employees, the Return on Cash program ('ROC') and ROCopoly") and thereafter redacts two full pages of its Response. This is both illegitimate (under FOIA and the FRB's ex parte rules) and troubling. ROCopoly is central to CitiFinancial: it is described in CitiFinancial's widely-available employee newsletter (see previous ICP exhibits, including ICP Exh. 6.4 (re Mike Knapp's RocoPoly Challenge); it is a take-off on the board game Monopoly; the system even includes a mock board, laminated and widely available in CitiFinancial branches, showing that credit and property insurance must be sold to hit "qualifying" levels. For the record, and in response to FRB Question 6, ICP has been informed that District Managers cannot get bonuses unless their branches hit "qualifying" levels of insurance sales. ICP has submitted documentation of what these "qualifying" levels are in various states. In many branches, the focus is only on the "superior" level. ICP has submitted documentation of how few insurance claims Citigroup actually pays out on (see Exhibits to ICP's Seventh Comment). Given the issues raised (and already public), the withholding of Citigroup's entire response on this issue is illegitimate and troubling. The information must be released and comment allowed thereon.

   FRB Question 7 concerns disclosures made regarding insurance. ICP has submitted the talking points Citigroup has distributed to employees, including to answer such customer statements as "I do not want it" and "I can't afford it." Citigroup is now trying to provide scripts along with a request for confidential treatment. It is imperative that the talking points ICP timely submitted and the scripts Citigroup has late provided under confidential seal be compared.

    Citigroup's Response to FRB Question 7b ("any characterization of a loan as 'fully protected') refers only to a Conversation Guideline "used only in New York." But ICP's Exhibit have shown numerous CitiFinancial documents using the euphemism "protection" and "protected" for insurance. This Citigroup Response is misleading, incomplete, inaccurate -- appropriate actions including denial of Citigroup's applications should take place forthwith.

    Citigroup has yet to answer FRB Question 8, again regarding credit insurance. Citigroup states that "this information will be provided by amendment." That is to say, Citigroup has two weeks and couldn't or wouldn't respond, but nevertheless wants the comment period to close and the "expeditious" approval referred to by Ms. Magner at the July 8 formal meeting. Clearly, the comment period must be extended. And a copy of Citigroup's late / "amend[ed]" response to FRB Question 7d should be provided directly to ICP and other commenters -- as, for example, Citigroup's other unilaterally delayed submission, of the litigation list requested in the FRB's first AI letter, still hasn't been, despite ICP's July 11 FOIA request.

   Indicatively, Citigroup is able to provide credit insurance information for its prime loans (FRB Question 9) but not for its subprime loans (FRB Question 8) -- and Citigroup states that the mostly-prime "CitiMortgage does not offer credit life, disability and unemployment or similar credit insurance products to customers at or prior to the time of loan closing." Resp. at 11, emphasis added.

    This Citigroup sentence made plain the separate but unequal system in use within Citigroup. To CitiFinancial customers (whose demographics notably skew more toward the classes protected under the fair lending laws than do those of Citibank or CitiMortgage, see ICP's previous timely HMDA analysis), Citigroup aggressively sells credit and personal property insurance, resulting in higher payments. Often the insurance is of no benefit to the customer, as ICP has shown (with respect to ice chests and fishing rods and leaf blowers in CitiFinancial's property lists, and see infra, WSJ of July 18, 2002). One proof that these products are of limited benefit to customers is that Citigroup does not sell or offer ANY OF THEM to its prime customers. Citigroup's various claims that these products benefit customers (claims turned into hard-sell in the internal CitiFinancial talking points ICP submitted among with its Seventh Comment) are called into question by the fact that Citigroup does not offer or sell the products to its prime customers. This is a crucial point, and separately and by itself calls for the denial of Citigroup's application and other enforcement actions, including under the fair lending laws...

   ICP wishes to timely put into the record the following Wall Street Journal article of July 18, 2002: "Efforts by Citigroup to Reform Subprime Unit Raise Questions," by Paul Beckett, which beyond the "mystery shopping" scam reports [snip]

     Consider for a moment the cynicism of this statement, and of the underlying practice: Citigroup admits that its purpose in routinely and systematically obtaining (requiring) "property lists" is not to secure the loans. It is clear to ICP, and numerous informed sources have confirmed, that the purpose is to sell credit insurance, that has no value to the customer, by Citigroup's own concession. Ajay Banga's statement that the purpose is "to make the borrower more responsible for paying the loan back" is ludicrous, and a significant admission in light of the fact that CitiFinancial routinely and systematically sells (packs) insurance on these items (as ICP has documented, ice chests, fishing rods, CD collections, and, yes, leaf-blowers). These practices are beneath contempt; they are predatory; they require the denial of Citigroup's applications.

   In response to FRB Question 12, Citigroup admits that "[t]he credit for a sale of insurance that a district or branch manager would otherwise received... is reversed if the customer cancels the insurance." Then Citigroup claims that there is no pressure on CitiFinancial customers not to cancel their insurance. ICP has put into evidence a memo announcing a CitiFinancial training explicit to prevent insurance cancellations. See ICP Exh. 5.3. Citigroup's response is not credible.

    This is further demonstrated by Citigroup's response to FRB Question 13, regarding ROCopoly and "the 7500 club," which was explicitly referenced in ICP Exh. 5.2, a CitiFinancial branch manager stating: "Team, this is not the direction we need to be headed... Remember starting today we belong to the 7500 Club. You get it." Emphasis added.

   Citigroup states that "[t]here is no 7500 Club... the 7500 Club is not (and has never been) a component of the CitiFinancial incentive compensation program." Resp. at 13.

     This raises a central point: just because Citigroup and its counsel, or CitiFinancial headquarters in Baltimore, say that something doesn't exist or is not taking place -- does that make it so? A review of recent and current Congressional inquiries into corporate practices would say: no it does not. The focus here is on what CitiFinancial, through its branches, is actually doing. It is at this level that CitiFinancial customers are impacted, not with the pie-in-the-sky whitewash emanating from CitiFinancial in Baltimore, Citigroup in New York or its counsel in DC. Citigroup's July 17 claim that "the 7500 Club is not (and has never been) a component of the CitiFinancial incentive compensation program" (emphasis added) flies in the face of actual documented practices. The point is broader than the 7500 Club (the statement "you get it" is particularly evocative of the sub silencio nature of how things really work at CitiFinancial) -- ICP has submitted CitiFinancial documents reflecting other "carrot-and-stick" programs, such as enforced overtime through "Blitz Nights," competitions to sell the highest number of loans and the most credit insurance, with the winners getting a free lunch or, in and around Knoxville TN, a trip to "Dollywood," etc.. Citigroup claims that none of these things exist but that is simply not the case.

    ICP contends that Citigroup and CitiFinancial are presumptively aware of these practices, profit from them, but seek to retain plausible deniability for regulatory review such as these FRB AI Question and the still-not-addressed examination of CitiFinancial upon which the FRB conditioned its Citi-EAB approval in mid-2001. There is sworn testimony (most recently referenced in the WSJ of July 18, 2002, see supra) that CitiFinancial employees have been ordered to hide documents from "banking" examiners. It is imperative that the exam be completed and made public, that Citigroup be required to disclose and cancel gag orders of the kind ICP documented in the Citi - EAB / Banamex proceedings, and that a public hearing be held. To do less, including to either uphold Citigroup's frivolous and overbroad requests for confidential treatment, or release the data when no comment thereon is allowed, would be dereliction of duty on the agencies' part.

   Interesting, Citigroup further tries to spin the "7500 Club" by stating that "[r]eference to the 7500 Club likely comes from a handwritten note by a District Manager on a document that was disseminated to certain branches in Tennessee." See ICP Exh. 5.3; note that this incentive program ("you get it") is de facto in force at CitiFinancial branches that impact customers -- and that, even if one were to accept Citigroup's spin, no disciplinary action has been taken regarding these purportedly unauthorized additional incentive programs (which, we note, provide profit to Citigroup such as those announced on July 17, 2002).

    In the dwindling time remaining in the current comment period, this is an opportune point to discuss CitiFinancial's duplicitous public responses to compliance problems that come to light. As the FRB knows, in mid-2001 ICP documented extensive (and similar) problems at CitiFinancial in South Carolina. Citigroup publicly dismissed these issues, blamed them on disgruntled ex-employees, and sent employees of its outside counsel to South Carolina (see previously cited Reuters article) to threat to sue certain ex-employees if they provide any further information or otherwise "disparaged" Citigroup. Subsequently Citigroup acknowledged that it terminated a supervisory employee in South Carolina (see previously cited American Banker article). But the problems documented went well beyond the employee-level to which Citigroup limited its belated disciplinary action, and were caused by higher-ups still in Citigroup's employ.

    While Citigroup was publicly denying that the allegations had any merit, CitiFinancial a July 24, 2001, "cover-your-a**" memorandum from Mike Knapp, Harry Goff and Jerry Bayless to "CitiFinancial Employees," stating inter alia that "[o]ver the past several weeks, two former employees have come forward with allegations that they participated in or witnessed behavior that is in clear violation of our policies and procedures... Your management will soon be contacting you to discuss these issues in greater detail...". See ICP Exh. 8.2, annexed hereto. Given that Citigroup's "review[]" of the matter included threats to sue on life-long non-disparagement clauses, one can only imagine what these subsequent "management" contacts involved. In this proceeding, ICP has asserted that Citigroup's "review" has included the brow-beating of employees at the Morristown, Tennessee CitiFinancial branch, with a focus on who gave Inner City Press the documents, and not on the underlying practices the documents reflect. The branch manager who said, of the 7500 Club, that "you get it" was at the Morristown branch on both July 8 and 9, simultaneous with Ms. Magner's canned testimony and rebuttal at the formal meeting. An inquiry into these matters is required.

    Since today's Wall Street Journal reports in some detail on another ex-CitiFinancial employee, ICP feels compelled to amplify that now-public account. We note that it is another, though different, case of Citigroup suing (in this case pursuing criminal charges) against a whistleblowing former employee. The WSJ's reference to an 18-year old unrelated criminal matter was dug up, as "dirt," by Citigroup's public relations department itself. The message to other potential whistleblowers is clear: speak out against our practices and we will find any dirt in your background, no matter how old, and provide it to the press. Citigroup's fancy talk about whistleblower protections is just that, talk. Citi threatened to sue South Carolina whistleblowers, has pursued a criminal complaint (and dug up 18 year old dirt) on a Tennessee whistleblower and has brow-beat and intimidated its own employees in close nexus with this FRB, OTS and FDIC proceeding. Additionally, regarding today's WSJ article, CitiFinancial has explicitly sought to track and prevent "pay off" requests they believe are attributable to this ex-employee, whether or not the customers would be getting a better deal, a lower rate, less abusive credit insurance, etc.. Annexed hereto as Exhibit 8.1 are memoranda from two separate CitiFinancial district managers requesting "a copy of all payoff requests that you have received" from the individual and "asking for your help to stop this bleeding of our accounts." ICP has been informed, here and elsewhere, that CitiFinancial tries to discourage or make impossible its customers refinancing to more favorable loans by ignoring payoff requests, intentionally misplacing them and even by racking up credit bureau inquiries on prospective pay-off prospects so as to drive their FICO scores down and make the new loan impossible. ICP is aware of just such a recent case; it is related to one of the cases of brow-beating and intimidation (this time of a customer, not an employee) that ICP has timely recounted into the record in this proceeding.

    Where is this all going? It is up to the agencies, at this time. The agencies can either coddle Citigroup, allowing late and blatantly inaccurate responses but nevertheless closing comment periods, or they can do what the law requires.

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of July 18, 2002: While Citigroup's responses to the Federal Reserve Board's below-quoted questions, which largely tracked the exhibits Inner City Press / Fair Finance Watch has submitted, were due on July 18, with the comment periods expiring July 18, on July 17 ICP learned that the Fed had given Citi an extension such that its responses wouldn't be received during the comment period. ICP has submitted an additional timely comment, asking for an extension of the comment period, and putting into the record six more exhibits: scripts for hard-selling credit insurance, including directives to not "over disclose" and to take "property lists" for every loan and to sell insurance on all of it. The comment is summarized below.

                                                                                             July 18, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's seventh timely comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a seventh timely comment opposing and requesting and extension of the comment period and hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

   As you know, ICP submitted detailed comments, with multiple CitiFinancial exhibits, on June 3, 10, 24 and 30, and July 15, 2002. On July 3, the FRB asked Citigroup 34 questions, many of which appear related to exhibits ICP submitted on June 3 and thereafter. By the terms of the FRB's Additional Information letter, Citigroup's Response was due on July 17: prior to the current expiration of the comment period. ICP anticipated receiving Citigroup's Response and commenting thereon, particularly since Citigroup has yet to respond to ICP's comments and exhibits submitted as far back as June 24, three and half weeks before the expiration of the comment period. See Citigroup's July 3 submission and Ms. Magner's purported rebuttal statement in the Transcript of the July 8 formal meeting.

    At 5:30 p.m. on July 17 I learned that the FRB has decided to grant Citigroup an extension of time to file its Response to the July 3 Additional Information letter. [FN: While this extension was explained with reference to new post-9/11 screening procedures at the Board, Citigroup knew of these procedures. If Citigroup gets an extension, so too must the commenters. ICP in particular requests an extension, in light of Citigroup's failure to timely respond to June 24 (and 30) exhibits, and the nexus between the exhibits ICP has submitted and the July 3 Additional Information letter]. Accordingly in this comment, which is timely, ICP is requesting an extension of the comment period so as to be able to receive, review and comment on Citigroup's Response to the Additional Information letter which concerns CRA and subprime lending.

   In the interim, ICP submits the attached additional exhibits, which further demonstrate CitiFinancial's predatory lending and insurance sales practices:

   -- Exhibit 7.1 hereto is an internal CitiFinancial documents headed, "Questions to Ask During the Application." It suggests ways to elicit information from an applicant, often unrelated to the loan being applied for, in order to sell more insurance. Question 5, for example, directs employees to ask "What kind of car do you drive? And your wife/husband? Does your family have any other cars, vans, RVs in your name? How about any boats (under 22 feet)?" As ICP has previously documented, Citigroup seeks "collateral" for non-real estate loans primarily in order to sell insurance. This script ends with the statement "THEN you are going to be ready to USE THE MOUSEPAD!!". As the FRB will remember, in the pending FTC predatory lending litigation against Citigroup, a CitiFinancial employee has asserts that she was directed to hide just such "mouse pads" from the banking regulators.

   Exhibit 7.2 hereto is an even more specific script, suggesting questions for "during the application: just ask questions" and for the "Approval Stage." During the application, CitiFinancial employees are to ask, in cross-examination form, "You are carrying Liability Only coverage on those vehicles? Is that right?" Then at the "Approval Stage," the question is repeated, followed by "We require that the vehicle have comprehensive physical damage coverage... You can buy ours. We have an excellent policy... and we can include it right in the loan payment for you. Would you like us to take care of that for you?" Emphasis added.

   Exhibit 7.3, "Ideas for Improving Sales," instructs as bullet point 1 to "[s]top talking beyond the sale (Don't over disclose)." Emphasis added. FRB Questions 7, 14 and others concern the disclosures CitiFinancial makes regarding insurance. Here, CitiFinancial is instructing its employees in writing to not "over disclose." The CitiFinancial script explains the reason for this: it is "an indication the employee does not believe in the product." As noted, there are many good reasons not to believe in the sale of insurance on such items as leaf blowers, lawnmowers, fishing rods and ice chests. Cynically, this "don't over disclose" directive is followed by Citigroup's throw-away line, "do the right thing." The right thing for whom, we (and the FRB) might ask.

   This script continues: "Ask 'What kind of payment do you feel comfortable with?' Then develop a protected loan to fill the need. THIS ONE PHRASE WILL IMPROVE SALES ENORMOUSLY." (Emphasis added). Among other things, the above-quoted shows that CitiFinancial tells its employees to assume that the applicant wants insurance and to always in the first instance "develop a protected loan."

   Citigroup has stated more than once in this proceeding that insurance sales volume is not an "overriding" factor in CitiFinancial's employees' compensation. The FRB has asked about this, in Question 6. Whatever Citigroup responds in its now-extended response period, we wish to highlight bullet point 4 in Exhibit 7.3, which instructs that "Everyone is to maintain a personal tracking sheet and calculate $/K or PPL on each loan. TOP BRANCHES ALWAYS DO THIS." It is difficult to decide what to highlight in this last quote: EVERY employ is to track their own insurance sales; ALL "top branches always do this." As an aside, ICP has heard this colloquially described by CitiFinancial employees as "tracking for packing" -- that is, insurance packing, which is the predictable and inexorable result of CitiFinancial's compensation scheme and internal directive such as those attached hereto.

   Exhibit 7.3 continues, at bullet point 5, with the statement that "We are a secured lender. Ask for collateral. Update property list on every loan. We can write PPI on the total of payments." The nexus between compiling the property lists and selling insurance could not be clearer.

   The function of this Exhibit 7.3 within CitiFinancial is clear (and responsive to the FRB's AI letter): "The purpose of any training it to bring about changes in the participant." Among the "changes" which are the purpose of this CitiFinancial training document is to convince employees not to "over disclose," to track their own insurance sales, and to take property lists and sell insurance on every loan. CitiFinancial is a predatory lender -- by design.

   How does these "training" play out at the level of individual employees? Exhibit 7.4 hereto is a note by a CitiFinancial employee that "I will offer every product available to every customer that I speak with. With no exceptions. This includes Home & Auto product."

    From the individual to the nationwide: Exhibit 7.5 hereto provides "Annual [Insurance] Claims Summary" information for 23 states. Citigroup's insurers' actual payment of claims are unprecedentedly low in comparison to the insurance premiums collected. The FRB and others can compare this claims-paid information to premiums-collected information (which the FRB has requested), or to the number of CitiFinancial offices in each state. The chart is broken down into Disability Claims, Life Claims, Property Claims and Involuntary Unemployment Claims. In the state of Tennessee, for example -- in which each of CitiFinancial's 70 offices aggressively sells property insurance (see supra, Exhibit 7.3, bullet point 5), Citi in a complete year paid out only 48 claims, for only $78,121. In Virginia, Citi paid out only 25 claims, for only $28,557. In New Mexico, Citi paid out only 22 claims, for only $31,222. In New York, Citi paid out only 30 claims, for only $42,209. This should be compared to the volume of premiums collected, and policies in force -- and appropriate referrals and enforcement actions should be made and taken.

   Exhibit 7.6 is a script to convince applicants who say they don't want insurance to "take" it. It is headed, "Questions to ask customers when they say..." and provides between three and five statements to use in response to five possible customer statements. Perhaps the most telling is Customer Statement #4, "I don't want it." One might think that would be the end of the discussion. But CitiFinancial provides five come-backs, ranging from "Can Mrs./Mr. ____ make this payment if something happens to you?" to "Maybe I didn't explain to you what this program can do for you." To Customer Statement #5, "It costs too much," Citigroup suggests this come-back: "The coverage is included in the payment -- you will not have to make an additional payment each month." This CitiFinancial script speaks for itself. Citigroup's applications should be denied and appropriate enforcement actions taken.

   As noted above, Citigroup's failure to even purport to respond to the exhibits, including internal CitiFinancial documents, which ICP submitted on June 24 (three and a half weeks ago) and thereafter, combined with Citigroup's failure to meet the stated deadline on the FRB's July 3 Additional Information letter (many of the questions in which are related to exhibits ICP submitted as far back as June 3) militate for and require an extension of the comment period. The FRB should hold a public meeting on the application. On the current record, the agencies could not legitimately approve Citigroup's applications.

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of July 15, 2002: following the July 8 formal meeting, and receipt of the Federal Reserve's 34 questions to Citigroup (Citi's responses are due on July 17), ICP submitted a sixth comment and more exhibits on July 15. The comment is summarized below. For now, both the Fed and OTS say their comment periods expire on July 18. But Citi's response to the 34 questions are due July 17; Citi group continues to withhold relevant documents, etc.. So the requests continue.

                                                                                             July 15, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's sixth timely comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

    On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a sixth timely comment opposing and requesting hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    ICP submitted detailed comments, with multiple CitiFinancial exhibits, on June 3, 10, 24 and 30, 2002. On July 8 the Office of Thrift Supervision ("OTS") held a formal meeting, which the FRB attended. At the conclusion of the formal meeting, the OTS extended its comment period through July 18; the FRB followed suit. This comment is timely.

    While Citigroup has yet to respond to exhibits that ICP submitted three weeks ago (see infra), ICP is attaching hereto further exhibits reflecting systemic predatory lending at CitiFinancial. The FRB's most recent Additional Information letter poses 34 questions. The responses are due July 17; the comment period should be extended to permit review and rebuttal of Citi's responses. FRB Question 16 concerns CitiFinancial's system of "Upsell[ing]," and asks Citigroup to "[i]dentify all safeguards implemented to prevent the potential circumvention of procedures established to help ensure that customers receive appropriate products." Whatever Citigroup responds, attached hereto as Exhibit 6.1 is an internal CitiFinancial memorandum from Don Laney to all Region and District Managers (cc-ing Ed Starkey and Habib Akawi) introducing a

"form to be used by the branch manager to document their monthly review of personal loans to homeowners that were booked but not upgraded to full secured real estate loan... to assist the branch in improving their upgrade performance." (Emphasis added).

    In response to FRB Question 16, far from being "safeguards" in place at CitiFinancial, it is systemic policy to convert personal loans to liens against borrowers' homes. Another aspect of "Upsell" is demonstrated by Exhibit 6.2 hereto, a memorandum promulgating a new policy:

"ANY NEW PERSONAL HOME OWNERS THAT SCORE - EXCELLENT, GOOD, OR AVERAGE - LESS THAN $5,000 ADVANCE NEEDS DISTRICT MANAGER APPROVAL.

I suggest that you try to upsell so you can by pass this." (Emphasis added).

     Here, regardless of the size of loan requested by the applicant, CitiFinancial loan officers will have to go and obtain District Manager approval if they are not "maxing-out" the personal loan (which in turn they are then supposed to further upsell to a lien against the applicant's home). In light of such memoranda, and the other exhibits ICP has submitted, ICP is dubious of any "safeguards" which Citigroup now presents - and the regulators including the FRB should be dubious as well.

   Regarding insurance packing, of which the FRB has asked questions as well, Exhibit 6.3 hereto is a memorandum from Citi's insurance company American Health & Life, which shows not only that many customers leave their closings without understanding they have been "sold" credit insurance, but also that CitiFinancial is aware of this, and comes up with the idea of actually explaining the insurance at closing, while remaining "positive" (see second page of Exhibit 6/3, regarding "Welcome letter from Home Office:" "we should remind our employees to be positive when reviewing the letter...").

    Regarding the pressure on CitiFinancial employees to force-sell credit insurance (and "upsell" loans), Exhibit 6.4 hereto, a memo from July 2, 2002, refers to documents on CitiFinancial's "CFWeb" intra-net which "provide[] details of the qualifiers," including, as ICP has shown, "qualifying" levels of credit insurance sales. The regulators including the FRB should request and obtain print-outs of these and other CFWeb documents.

   Regarding CitiFinancial's lack of responsiveness to state regulators' inquiries into forced-placed credit insurance, Exhibit 6.5 hereto shows a complaint from a state regulators which CitiFinancial repeatedly delayed in responding to, and finally responded to with a handwritten note essentially extinguishing the claim by stating that it was conveniently not in CitiFinancial's vaunted computer system.

    Regarding the pressure to upsell / convert Sale Finance Contracts into CitiFinancial loans (then real estate loans), Exhibit 6.6 hereto is an internal CitiFinancial document listing nationwide "District Rankings" in this regard.

    Exhibit 6.7 is an internal CitiFinancial list regarding "how to generate a loan per day," including the directives to "Get unreasonable" and to "Do whatever it takes." And that is among the problems: CitiFinancial has designed an incentive system which virtually requires employees to force-place insurance, to "upsell" and otherwise gouge customers, all the while telling them with a wink and a nod to "do the right thing every time." CitiFinancial is a predatory lender: not on an anecdotal basis, not on a branch-by-branch or state-by-state basis, but systemically, company-wide. Given the issues that have arisen, the comment period should be extended to allow comment on Citigroup's responses, due July 17, to the Additional Information letter's questions; the FRB should hold a public meeting and on the current record should deny Citigroup's applications.

    While ICP continues to review the 232-page Transcript (the "Tr.") of the formal meeting, ICP reiterates its concern that Citigroup arrogantly chose to ignore the specifics of the testimony at the formal meeting, and the exhibits ICP has submitted to date. Citigroup's Marge Magner read prepared statements, Tr. at 160-167 and 203-211. In her rebuttal, she repeated a statement made in Citigroup's July 3 "Omnibus Response," that "with respect to allegations in various documents regarding individual borrowers... which are been published by one commenter, these allegations were subject to review... the review identified only one issue and corrective actions was taken. Additional materials have been provided more recently by the same commenter. CitiFinancial's in the process of reviewing those materials in the same fashion it reviewed the earlier ones." Tr. at 210.

    The "additional materials" referred to including exhibits ICP submitted on June 24: three weeks ago. The comment cannot close with Citigroup repeatedly stating that it will respond at some future date to exhibits submitted three weeks ago. Furthermore, in light of Ms. Magner's statement, it is important to note that Citigroup's "review" has included the brow-beating of CitiFinancial customers, and of the entire staff of CitiFinancial's Morristown, TN branch on July 8 and 9 -- that is, simultaneous with Ms. Magner reading her prepared statements. The Morristown office of CitiFinancial was essentially closed for two days of intimidating interviews, the focus of which was on how ICP obtained the documents, and not on the practices which they reflected. This is inconsistent with Citigroup's statements about its ethics hotline and "whistleblower" protections; it should be reviewed immediately by the regulators including the FRB. Given the issues that have arisen, the comment period should be extended to allow comment on Citigroup's responses, due July 17, to the Additional Information letter's questions, and to Citigroup's overdue response to ICP's June 24 and 30 exhibits; the FRB should hold a public meeting and on the current record should deny Citigroup's applications.

     Further on the managerial and lack-of-standards issues ICP has timely raised, and to most of which Citigroup has declined to timely respond: Citigroup has declined to provide WorldCom related documents requested by Congress members. See, e.g., N.Y. Daily News of July 13, 2002, "Solomon's Document Delay Irks Congressman.  See also, Financial Times of July 13, 2002, "Securities Body Joins Salomon IPO Inquiry."   See also, N.Y. Post of July 11, 2002: " Responding to Rep. Paul Kanjorski's (D-Pa.) query about whether IPO shares had been set aside for WorldCom's executives, Grubman said, 'I don't recall. I'm not saying "no," I'm not saying "yes."' However, Kanjorski said his request was prompted not by Grubman's testimony, but because of other information. 'We had some prior information that indicated that this [WorldCom execs had received IPO shares] was the case,' Kanjorski said."

    On the predatory lending issues that have arisen and been documented regarding CitiFinancial, Citigroup cannot be allowed to be similar evasive. Citigroup must respond to the exhibits that were submitted on June 24 and 30; the comment period should be extended to allow comment on Citigroup's responses, due July 17, to the Additional Information letter's questions, and to Citigroup's overdue response to ICP's June 24 and 30 exhibits; the FRB should hold a public meeting and on the current record should deny Citigroup's applications.

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of July 11, 2002:   While requests are being made to the Federal Reserve to hold its own public hearing on Citigroup and its Golden State application, the Fed has now posed 34 questions to Citigroup on subprime lending issues. Many of the questions relate to the documentation of CitiFinancial's practices that Inner City Press has been submitting to the Fed since June 3. For example, the Fed has asked:

"Describe in detail how the 'Mystery Shopping' program was conducted in 2001 and 2002 (through June). Provide detailed information on any advance notice or information concerning the Mystery Shopping program and/or visitations that CitiFinancial provided to regional, district or branch personnel during that time period... [ICP note: see ICP Exh. 3 of 6/3/02: "mystery" shopping heads-up].

"Discuss in detail all procedures instituted to ensure that CitiFinancial's incentive compensation practices conform to the Citigroup Initiatives. Identify all safeguards implemented to prevent potential abuses (such as 'loan flipping' and lending at the maximum LTV when such loan amount is not requested) and other actions from circumventing these procedures, including the nature and findings of any audits or other investigations conducted and any follow-up actions taken as a result.

..."Citigroup stated that '[s]ales of credit insurance do not represent an overriding factor in determining loan officer compensation.' Describe in detail the precise formulas for calculating all incentive compensation for (a) insurance and protection plan sales; (b) finance conversation; and (c) renewal loans for existing borrowers (including both upgrades from unsecured real estate-secured and present borrower renewals). Provide these formulas separately for each of the following category of employee: Customer Service Representative; Assistant Branch Manager; Branch Manager; District Managers; Regional Managers; and any other category of employee receiving incentive compensation calculated on the basis of sale volume in the three loan categories described above. [See ICP Exh. 1 of 6/3/02: QuicPlan bonus scheme].

"For 2001 and the first six months of 2002, provide the number and dollar volume of CitiFinancial real estate-secured loans and consumer loans (excluding credit cards, sales finance and auto loans) that were made with and without credit insurance, protection plans or other similar products, and for the loans made with such products provide the total dollar amount of the premiums charged.

"Provide copies of CitiFinancial's policies, procedures and disclosures (including scripts) regarding any effort by CitiFinancial to persuade CitiFinancial customers not to cancel existing credit insurance, protection plan or other similar product coverage they acquired in connection with their CitiFinancial loans. [See ICP Exh. 5.3 of 7/1/02]

"Describe in detail the 'Rocopoly' compensation system, including the bases for additional compensation (directly or indirectly) for all recipients under the system. In addition, describe in detail the 7500 Club including, but not limited to, explanations of membership criteria, incentive bonuses, and penalties, and exactly how additional factors in connection with membership directly or indirectly affects compensation of CitiFinancial personnel. [See ICP Exh. 6.4 of 6/24/02]

"Please explain in detail the 'Upsell Challenge List' component of CitiFinancial's 'Maestro' computer system. Identify all safeguards implemented to prevent the potential circumvention of procedures established to help ensure that customers receive appropriate products. [See ICP's 6/3/02 comment, describing "Upsell"].

"Provide a detailed explanation of each alternative action CitiFinancial personnel are authorized to take to prevent a loan, for which a borrower has not made a monthly minimum payment by the specified due date, from being reported as delinquent. Explain CitiFinancial's policies and procedures for accepting partial payment to prevent a loan from being reported as delinquent or nonperforming... Discuss in detail the corrective actions take by CitiFinancial in 2001 and 2002 (through June) where instances of noncompliance with these polices and procedures were discovered... Identify all safeguards to prevent abuses (such as 'under reporting delinquencies') designed to circumvent these procedures... [See ICP's comments from 6/3-7/1/02 describing systemic distortion of delinquency].

"Please send an original and eight copies of your response... by no later than July 17, 2002... In addition, please send a copy of the non-confidential portion of your response to the commenters...".

    We could further annotate these questions, tying even more of them to the evidence ICP obtained and submitted to the Fed. But that's not the point (and one could make the comparison easily by comparing the questions to ICP's comments, below, which describe the exhibits ICP has put into the record.  See, e.g., "Another Fed Probe of Citi Subprime Lending Arm," by Rob Garver, American Banker, July 12, 2002, Pg. 1). The main point however is: the questions have been asked and now Citigroup must answer. Citigroup will probably try to withhold most of its answers, but a combination of the Freedom of Information Act and the Fed's rules against "ex parte" communications should prevent Citigroup from hiding its answers, its actual practices, as it had been attempting to do for some time.

    Meanwhile, this report from the field: on July 10, CitiFinancial attorney Clarence Rison interviewed an individual who quite recently left CitiFinancial's employ. He demanded to know how Inner City Press had learned of certain loans and practices. Citigroup's response is to browbeat and intimidate those who complain, rather than fix any problems. A larger story is brewing but will have to wait.

Update of July 9, 2002:  at yesterday's formal meeting on Citigroup's applications to acquire Golden State Bancorp, Citi's main speaker for Marge Magner, "Chief Operating Officer of Citigroup's Consumer Group." Ms. Magner (at times hereinbelow "the COO") began speaking at 4:45 p.m. EST -- we use the word "speaking" loosely, because The COO in fact read a prepared statement which entirely ignored the adverse issues that had been raised, other than in the single (final) sentence, "Citigroup is proud of its consumer lending practices, especially the Real Estate Lending Initiatives." This despite that fact that loan flipping, insurance packing and other predatory practices had been documented for the record, particularly concerning CitiFinancial's non-real estate "consumer" loans.

    ICP went first in rebuttal and highlighted to the more-than-a-dozen regulators present that Citigroup's COO's presentation had been entirely non-responsive, and that Citigroup's applications should be suspended until Citi responds to the issue, and until the Federal Reserve completes and makes public the examination of CitiFinancial on which it conditioned its approval of Citi-EAB in mid-2001. Speakers for the other commenters, from California and North Carolina, expressed similar outrage at Citigroup's failure to respond to the issues raised. Citigroup was then granted 20 minutes to reply. And... the COO once again read in a monotone from a written statement that had been prepared, apparently, prior to any of the testimony or rebuttals. Her final statement was read verbatim from Citigroup's July 3 "Omnibus Response," that ICP had submitted "additional material... in its filings dated June 24 and June 30, 2002. CitiFinancial is in the process of reviewing those materials in the same fashion it reviewed the earlier materials that have been made available on 'the commenter's' website and filed with the banking agencies. To date, it does not appear that any of the materials that have been reviewed reflect violations of policy or law."

     But that material was submitted to the regulators and to Citigroup two weeks ago. To state that it "is being reviewed" while arguing to close the comment period is inconsistent with the purpose of the regulators' comment-and-response process. Citigroup's "General Counsel - Bank Regulatory" then argued that no extension of the comment period was needed (in particular he said that "one commenter" has had "unusual access to [Citi's] information"). It was pointed out that Citigroup is withholding the list it has submitted of branches it is considering closing -- information release in the Fed's Union Planters - Leader Federal and other proceedings -- and a list of subprime lenders with which Citi's Solomon Smith Barney does business, information released in the OTS' WaMu-Dime and in the Fed's U.S. Bancorp - Firstar proceeding. The OTS' Presiding Officer, who played the same role in WaMu-Dime, stated that the situation on Citigroup's application is factually different. ICP pointed out that the OTS had not even given ICP a preliminary response to its June 10 FOIA request.

     After much back and forth, the OTS Presiding Officer agreed to keep the comment period open for a week after the transcript of the public meeting becomes available (currently anticipated July 11, which would translate to a July 18 expiration of comment period). A Fed Legal Division staffer stated that the Fed will also keep its comment period open, but only for participants in the OTS formal meeting. Virtually all community commenters requested a second hearing, after the examination of CitiFinancial, promised by the Fed a year ago, is completed. The formal meeting concluded at nearly 7 p.m. EST; across the Hudson in an alternative universe, Citigroup's Sandy Weill was preparing to accept an award on the floor of the New York Stock Exchange...

     At the formal meeting, it was emphasized that not only Ms. Magner, but also Bob Willumstad and Sandy Weill, have all been involved in designing, implementing and overseeing the CitiFinancial practices complained of. In fact, ICP has heard from numerous CitiFinancial employees who attended a "rah-rah" talk given by Ms. Magner in Baltimore to CitiFinancial employees. Ms. Magner was CEO of CitiFinancial for five years. Which makes her silence on these issues all the more befuddling. Based on the reviews provided by the CitiFinancial employees, ICP on July 2 urged both the OTS and Citigroup that other Citi representatives come to the formal meeting to address these issues: either Bob Willumstad (who signed various of CitiFinancial's purported reforms) or in the alternative Mike Knapp. Oh well.

     Following the formal meeting, ICP was informed that Citigroup's response to the detailed Tennessee predatory lending documentation -- which the COO refused to address -- has been for CitiFinancial's David Baer and legal personnel from CitiFinancial's "Home Office" in Baltimore to call a customer at her job, demanding to know whether she was the source of any of the documentation. Despite the context, the CitiFinancial representatives stated that they were "not trying to intimidate" the customer. Thou dost protests too much... Documentation of this and other matters will be submitted in the new comment period, before July 18. This will be updated.

Update of July 8, 2002: in the run-up to the July 8 formal meeting on Citigroup's applications to acquire Golden State Bancorp, Citigroup on July 2 told the Office of Thrift Supervision that it would finally submit a response to ICP's and others' comments by July 3. At 4:20 p.m. on July 3, Citigroup put out a press release announcing a vague $120 billion lending commitment. The press release said that more information was available on Citigroup's web site, but that was not true, as of 11 p.m. on July 3. Also on July 3, Citigroup submitted its response to the OTS, FDIC and Federal Reserve. Half of the response consists of old documents from 2000 and 2001. In the new "Omnibus" response, Citigroup states among other things that "informing branches of the mystery shopping program has a prophylactic effect" (we'll let that one stand without comment); and that

"additional material have been provided by Inner City Press in its filings dated June 24 and June 30, 2002... CitiFinancial is in the process of reviewing those materials in the same fashion it reviewed the earlier materials that have been made available on Inner City Press' website and filed with the banking agencies. To date, it does not appear that any of the materials that have been reviewed reflect violations of policy or law."

    Presumably Citigroup acknowledges, then, that its goal is to strip the equity our of as many moderate income homeowner's chief asset as possible (see last Week's Report).

    On July 1 the Federal Reserve provided ICP with some portions of Citigroup's application which Citigroup had wrongly withheld, along with some of the Fed's internal communications about the application, up to June 10 (the date of ICP's Freedom of Information Act request). These documents show:

    On May 28, the Fed held a conference call with Citigroup to allow Citigroup to "explain[] the various steps, structure, timing and various required regulatory filings" related to the proposed merger. Attending for Citigroup were Carl Howard, Jim Scott, Jeff Wattiker and John Gunther, as well as two lawyers from Skadden Arps. Citigroup "indicated that they may file on or about June 7, 2002 and would like to close by the end of August." [ICP note: Citigroup has told state regulators they aim to close by the end of July -- whatever makes the agencies move faster, appears to be Citigroup's approach]. Citigroup's outside counsel "suggested that even though this is still a bank transaction the major issues involved would be dealt with at the OTS and as such it may qualify for a waiver. Citigroup representatives asked whether the case might proceed on a delegated track. Staff replied that they could not speak for the Governors and that public comments may affect the timing. Staff also said that the case would be delegated to the Secretary of the Board due to Mr. Weil's [sic] presence on this Reserve Bank's Board of Directors if it were delegated at all."

   The Fed's internal e-mails have been provided only in redacted form. In a June 7 e-mail, SF Fed staff informs NY Fed staff that "I spoke with Liz [REDACTED]." The response to that message, from the NY to SF Fed, is "[REDACTED]. Agreed?" Yeah, sure. In a June 3 e-mail, Fed DCCA staff writes that "Citi has requested that the application be acted on by mid-July (that's a 45 day timeframe)," following by a paragraph-long redaction.

    Left in the e-mails was the following (sorry for the self-referential, almost post-modern vibe here, but this is FOIA, and here's what it says): on June 3, FRB legal staff writes that ICP's "comments concerning the convenience and needs factor including info. on allegedly abusive CitiFinancial lending and credit insurance practices. [ICP] apparently received the info. from one or more CitiFinancial employees during the last six months (particularly in the Knoxville, TN area) -- including internal memos and CitiFinancial Maestro computer data. [ICP] also alleges disparities on race in Citigroup's 200 HMDA data and 2001 LARs data (NYC, Oakland, SF, LA, Chicago, DC, Rochester and Newark), "steering" allegations (prime vs. subprime lender); and concerns regarding SSB's lending to subprime lenders and underwriting of securitized subprime loan pools."

   The following day, June 4, FRB legal staff wrote to a dozen other staffers that "Today, the Board received the first comment on this notice. The comment is from Inner City Press. Although I'm sure we all remember, this is to remind everyone that our internal processing of this notice is now subject to the Board's policy on ex parte communications with notificants. Given the high public profile of this deal it is particularly important that we adhere to proper procedures in this case at all time... ICP's comment seems to deal with the usual CRA/fair lending/ predatory lending concerns, especially in regard to CitiFinancial. Any communications with Citigroup on these matters should therefore be in writing, however inconvenient this may seem. If you feel that you absolutely, positively have to talk to Citigroup about a matter raised in a protest, please do not do so without someone from Board Legal on the phone. (Any oral ex parte discussions will have to be summarized in a memo that can be made public.)"

  That message was then forwarded by a DCCA staffer to another Fed fair lending specialist, who wrote, "Thanks for the reminder on ex parte communications [REDACTED]." This redacted message was responded to by Board Legal: "S[upervisory] L[etter] 98-27 (9/29/98) covers the application of the Board's ex parte policy to supervisory / examination functions [REDACTED]."

  It seems clear that the Fed fair lending specialist's question concerned whether "examination" communications could circumvent the ex parte rules; S.R. 98-27 details the breadth of this loophole. Because of issues raised by the Fed's redactions, we feel a need to report the following: in late June, Fed staff stated that they are "in the middle" of the examination of CitiFinancial on which the Fed's approval of Citigroup's acquisition of EAB was conditioned in mid-2001. So the loophole is apparently not only large, but also live... While we will request what we can under FOIA, it would seem important for the Fed to summarize and disclose its communications with Citigroup in connection with that CitiFinancial examination, and the results to date of the examination, before ruling (other than denying) Citigroup's Golden State application...  

Update of July 3, 2002: At 4:20 p.m. today, Citigroup put out a press release announcing a 10-year, $120 billion "lending and investment commitment to minority and low- and moderate-income individuals and communities." The press release does not mention the predatory lending issues that have been raised in opposition to Citigroup's applications to acquire Golden State Bancorp -- it appears that the "commitment" is an attempt to evade and/or obscure those issues. The press release states that "Further details of this commitment are available at www.citigroup.com." However as of 5:00 p.m. on July 3, no "further information about this commitment" were visible on citigroup.com. ICP's position as of July 4: Citigroup's commitment does not address the systemic predatory lending is which CitiFinancial is engaged; Citigroup's press release does not even add up correctly (the sub-categories of the commitment are not specified, and much of Citigroup's 1998 "commitment" was in fact credit card lending).

Update of July 2-3, 2002: in the run-up to the Office of Thrift Supervision formal meeting on July 8, the FDIC wrote to ICP on July 2 stating that "Per your request... we are extending the comment period... We will also attend the formal hearing scheduled for July 8, 2002." On an OTS conference call on July 2, Citigroup stated that it will be bringing 10 people to the formal meeting. ICP requested that at least one of Citi's speakers be prepared to address the CitiFinancial predatory lending issues that have been raised, and that Citigroup release the list of prospective branch closures it has submitted to the Federal Reserve but which it is seeking to withhold from the public. It is said that Citigroup will be announcing a unilateral lending pledge regarding California and Nevada. It is remembered that a significant portion of the 1998 Citicorp-Travelers pledge was credit card lending; additionally, any pledge that does not address the predatory lending issues that have arisen and been documented... does not address the issues.

Update of July 1, 2002: As further documentation of predatory lending by CitiFinancial continues to flow in -- this time, an "equity stripping" hit-list -- the Federal Reserve Board last week responded to ICP's request for a hearing by stating that the Fed will "participate" in the Office of Thrift Supervision's July 8 formal meeting. ICP has submitted a similar to request to the FDIC. Below is a summary of ICP's fifth comment opposing Citigroup's application. 

July 1, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's Fifth timely comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a fifth timely comment opposing and requesting hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to the Federal Reserve Board ("FRB") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

   ICP submitted detailed comments, with multiple CitiFinancial exhibits, on June 3, 10 and 24, 2002. As noted in ICP's June 17 submission, Citigroup's response was due on that day. A week later, no response from Citigroup had been received. Late on Monday June 24, ICP received from Citigroup two documents: a late-filed response to ICP's June 3 and other comments, and a response to questions the FRB posed on June 18, 2002. Both are replied to below. ICP has received the FRB's June 27 letter stating that the FRB will participate in the Office of Thrift Supervision's (the "OTS's") formal meeting on July 8, 2002. ICP continues to urge the FRB to hold its own public meeting, under its own regulations -- the FRB is Citigroup's (and CitiFinancial's) primary regulator. The FRB has recently stated that it "expects banking holding companies and their affiliates to conduct their subprime lending activities without any abusive lending practices." (Board Order of June 24, 2002, n.18). CitiFinancial, as further demonstrated below, does not meet this standard: CitiFinancial is engaged in systematic predatory lending.

   As bases for the denial of Citigroup's applications and for other appropriate enforcement actions, further pre-hearing documents annexed to this fifth timely comment include:

    Exhibit 5.1 hereto is an internal CitiFinancial document from the Maestro computer system wherein CitiFinancial provides branches with lists of customers to solicit for new loans, sorted by Loan to Value ratio ("LTV") and "Remaining Income." This is essentially an equity-stripping list: customers with the lowest LTV (that is, with the most equity remaining in their homes) are solicited for new loans, to attach / strip the equity. This, combined with the other exhibits ICP has submitted, demonstrates the degree to which CitiFinancial has reduced equity stripping and predatory lending to a science. The "Remaining Income" column is particularly troubling. Midway through the first page we find that the customer with Account Number 101477 has, following CitiFinancial's loans of May 17, 2000, a Remaining Income of only $83.96 a month. CitiFinancial calculates this Remaining Income figure by taking gross income, subtracting loan payments, bills as reflected by credit bureaus and utilities ($175 for homeowners): what's left is "Remaining Income."

   The customer with Account Number 206748 was left, following CitiFinancial's loan of September 5, 2001, with a NEGATIVE "Remaining Income, "-50.45" dollars a month. Of all the borrowers on this Maestro system page, this is the only borrower for whom a telephone number is not listed -- not surprisingly, phone disconnected. CitiFinancial by any definition, including those used by the Federal Reserve (most recently in Governor Olson's previously quoted speech) is a predatory lender.

   Exhibit 5.2 hereto is an internal CitiFinancial document known as the "Insurance Summary." It documents the centrality of (packed) credit insurance to CitiFinancial. Beginning at the top, for the Johnson City, Tennessee CitiFinancial branch (# 099), the document reflects that in the first 16 days of March 2002 on this branch's personal loans, 84.2% of loans including life insurance; 57.9% of loans included Accident and Health (disability) insurance; fully 42.1% of loans included "Property Insurance" -- a product CitiFinancial's use of which is predatory per se, as specified in ICP's previous comments (and see infra); and 47.4% of loans included Involuntary Unemployment Insurance. The check mark next to the above-recited results indicates a satisfactory level of insurance packing. The "Measure" column reflects a score of 100.1, enough to score points for the branch under CitiFinancial's previously described "RocoPoly" bonus system. The far-right column reflects insurance on Real Estate Loans (100% penetration for life insurance by the Johnson City branch). The handwritten notations on the Insurance Summary are by CitiFinancial District Manager Jim Chakales, as is the comment at the end of the Summary, that "Team, this is not the direction we need to be headed... Remember starting today we belong to the 7500 Club. You get it." The 7500 Club refers to a volume of Auto and Health insurance sold and kept in place despite customers' attempts to cancel. See Exhibit 5.3, discussed infra.

    The results for the Kingsport (#100), Knoxville (#101), Jefferson, Bristol, Kingsport (#525), Greeneville, Knoxville (# 685), Morristown and Johnson City branches, in terms of packing insurance on personal loans is deemed insufficient by CitiFinancial's Insurance Summary / RocoPoly system (and by the District Manager's circles on the form). The scores obtained -- despite insurance penetration levels as high as 89.5% (Kingsport branch #100 for life insurance) -- do not qualify the branches for a RocoPoly bonus. However credit insurance packed onto real estate loans at the Bristol, Kingsport (# 525), Greeneville and Morristown branches is deemed enough for bonuses to be paid.

   Note that the Insurance Summary contains a line for "Single Premium" insurance: each of the ten branches reviewed in this Summary impose it.

   The final page of Exhibit 5.2 are similar numbers for three other CitiFinancial districts, all under CitiFinancial Regional Manager David Baer. Of these, Tennessee Valley is the "strongest," in terms of imposing Single Premium credit insurance.

    Above we noted CitiFinancial district manager Jim Chakales' exhortation that "starting today we belong to the 7500 Club. You get it." The 7500 Club refers to a volume of Auto and Health insurance sold and kept in place despite customers' attempts to cancel. Exhibit 5.3 hereto is a June 18, 2002, memorandum from CitiFinancial's Region Sales Manager Mike Gorman to branches stating that "David Bradshaw from FIMC (Home & Auto) will be holding a short training session for the Branches listed below. David will be discussing how cancellations might happen and what you can do to help prevent them." Emphasis added. The training centers on how to talk customers out of canceling this CitiFinancial insurance after they request to cancel it.

    Exhibit 5.4 hereto concerns a CitiFinancial "Problem Account" -- customer Betty Arnold. CitiFinancial branch manager Lisa Wilcox writes that "This is an insurance litigation case. We need to AOT this...". AOT stands for "Adjustment of Terms." The annexed Maestro print-out reflects (3/22/02) that "This was a joint account[.] The co-borrower died[.] They had a real estate loan and a personal loan. American Health and Life p[ai]d personal but not real estate. This is going to court...". Question: why would Citi's American Health & Life pay on one insurance policy (the personal loan) but not on the real estate loan? The back-story and answer: on the personal loan the customers did not have to answer the health questions; on the real estate loans ($140,000), they did. There are indications of document forgery (i.e. CitiFinancial staff filling out the forms and answering the questions themselves).

  Exhibit 5.5 hereto is another sample "Property Insurance" policy by Citi's Triton Insurance company, this time collecting $775.00 in premiums on a 1995 Honda which CitiFinancial included in the property list for a "semi-secured personal loan" and valued at $4,900.00.

   Exhibit 5.6 hereto is CitiFinancial's "Policy Violation Recap" for a single month, for a single office (Morristown, Tennessee). During this month, this office engaged in (at least) THIRTY TWO policy violations, most of them involving distortion of reported delinquency. Not surprisingly, most of the violations occur during the final ten days of the month, when branches are trying to make their result meet the threshold for a "RocoPoly" bonus from CitiFinancial. Many of the violations involve flipping: issuing "Refinance Balance Only" ("RBO") loans too frequently or on already delinquent accounts. On February 19, 2002 on Account Number 36728, the branch did "RBO More than Once a Year." The same on Account Number 36734 on February 20; the same on Account Number 36740 on February 22; on Account Number 36746 on February 26; on Accounts Number 36756 and 36756 on February 28, 2002.

    ICP's ongoing inquiry has found systemic distortion of delinquency at CitiFinancial. Exhibit 5.6 reflects same techniques which CitiFinancial itself found at a single branch in a single month. ICP has been told of CitiFinancial employees advancing customers' due dates including by informal and unauthorized payments from other accounts. An example: in a CitiFinancial conference call in May 2000, district manager Jim Chakales instructed ten branch managers to do "whatever they had to do" to reduce delinquency numbers, including by issuing "tornado deferments" despite the fact that no tornadoes had occurred, and by canceling customers' insurance in order to mis-apply insurance premiums they'd paid to their loans, to advance the due dates. One of the branch managers so instructed telephoned CitiFinancial 1-800 ethics line and reported this, the day after the call. Soon thereafter, district manager Chakales telephoned the branch managers individually to "inform" them that he hadn't made his previous statement. Later, CitiFinancial "investigated" the complaint by interviewing only one of the ten branch managers who'd been on the call. And nothing was ever done. This reflects (1) the previously-demonstrated laxity of CitiFinancial's compliance culture, including of the 1-800 Ethics line (to which the South Carolina CitiFinancial employees whose tales ICP has previously recounts also complained, without effect -- see, e.g., "Citigroup Hires Prominent Lawyer in Loan Abuse Case," Reuters, July 27, 2001; "Citi Corroborates Two Allegations," American Banker, July 30, 2001; and (2), given current development reflecting the effects of accounting irregularities, is a separate ground on which Citigroup's applications should be denied, inquiries begun, completed and appropriate enforcement actions taken.

* * *

ICP's Reply to Citigroup's "Response" Dated June 21, 2002

     Under the heading "Prevention of Predatory Lending," Citigroup claims to have "undertaken numerous initiatives to ensure that none of its lenders engage in predatory lending." It is important to note that Citigroup's publicly-announced initiatives have related only to real estate secured lending, and that much of the evidence ICP has timely submit concerns personal loans, so-called semi-secured loans. Citigroup's Response (the "Resp.") is non-responsive.

   For example, Citigroup's first substantive paragraph in this section discusses its purport shift away from single premium credit insurance. ICP has shown that CitiFinancial continues to routinely impose single premium credit insurance on "personal" loans, more than half of its business. Additionally ICP has shown that CitiFinancial's offers of monthly pay credit insurance to real estate secured borrowers has been limited (see ICP's June 24 Comment and exhibits).

    Citigroup's purported Response does not directly address ICP's showing that CitiFinancial branches were informed of the stop and start dates of the purported mystery shopping, and what would be shopped for. (See ICP's June 3 Comment and exhibits, and American Banker of June 24, 2002). Citigroup states obliquely that "CitiFinancial branches are notified that mystery shopping can occur at any time, but they are not notified of the precise dates on which it will occur."

    Exhibit 3 to ICP's June 3 Comment was a memorandum to CitiFinancial's Southeast Division from Division leader Wendell R. Miller. In the memo, the dates of the "mystery" shop are specified, as well as what will be tested for:

"Telephone: The test is do we service every customer consistently, i.e.: do we quote the same rates, LTVs, etc.? Are we consistent?

Branch visits: A minority and a caucasian will visit the same or separate branches and request identical loans. The test is do we quote the same rate, LTV, etc., and do we give equal service to each?"

    The implication is, be sure to keep the offers consistent during the duration of the test. The ending date of the "mystery" shopping is also specified, as the Exhibit makes clear and as reported in the American Banker of June 24, 2002 ("Too Much Information? Citi Mystery-Shop Sparks Debate," by Erick Bergquist, Page 17) [snip]

     As noted, the memo was cc-ed to Tim Baechtold, Division Operations Manager, and to K.C. Mead and Ed Starkey. Citigroup's "Response" is not credible.

    Similarly, Citigroup rather than responding to ICP's detailed showing of incentives for insurance packing (through RocoPoly bonuses and otherwise) states that "[s]ales of credit insurance do not represent an overriding factor in determining loan officer compensation." But fully 30 of the 100 possible (and 60 required) QUICPlan points are related to credit insurance sales. Again, Citigroup's "Response" is not credible...

    Citigroup's June 21, 2002, Response implies that the FRB's referenced exam is now completed. As notes, Citigroup on December 14, 2001, wrote to the FDIC that

[t]he Federal Reserve Board will conduct that examination and take action following that examination as appropriate. (Emphasis added).

    From this phrasing, in a December 14, 2001, letter from Citigroup's Carl Howard to the FDIC, it appears that the Fed had still not completed the examination of CitiFinancial, five months after it was announced in mid-2001 as a "condition" for the FRB to approve Citi-EAB. If it has been conducted in 2002, the results should be disclosed in this proceeding, including in light of Citigroup's claims in its June 21, 2002, Response.

    Citigroup states, Resp. at 10, that

with respect to allegations about individual borrowers, as various documents or allegations were published on the Inner City Press website, they were subjected to review by CitiFinancial's Compliance Department to determine whether there was evidence of any actions inconsistent with CitiFinancial policy and procedure. It was determined that with one exception the loans were made in accordance with applicable federal and state law guidelines, as well as company policy and procedure. Of the many Tennessee situations identified on the website and in the Comment, the review identified only one raised an issue [sic]. It was determined that a refund of an insurance premium was due. The premium was then refunded. Counsel for CitiFinancial consulted with the Compliance Department about the account reviews.

    By stating that its "review identified only one raised an issue" [sic], Citigroup is apparently claiming that it stands behind the practices in which CitiFinancial engaged in connection with the other loans ICP has documents in this proceeding. Why, then, is Citigroup canceling Ms. Craig's loan? Why is CitiFinancial "AOT"-ing the loan documented in the instant comment? Why did Citi's American Health & Life pay on one of the customers' life insurance policy but not the other? Citigroup should be required to respond to the issues ICP has raised, not evade the questions by referring to some internal review. And, clearly, information must be submitted into the record on the loan which Citigroup admits in the above-quoted violated its own policies...

     Citigroup's cover letter refers to a "Confidential Exhibit Binder" (which ICP hereby requests, under FOIA and the FRB's ex parte rules); it seeks to withhold the list of branches it is "contemplating" closing and a list of subprime lenders which SSB enables; it seeks to delay until August 2002 its next "semi-annual" report, when the last one was in December 2001... Citigroup's final exhibit is a now six months old "semi-annual" report on CitiFinancial's "Real Estate Lending Initiatives." Citigroup is attempting to delay its now-due next semi-annual report under August 2002, for reasons that should be obvious when compared to the timing of this application proceeding. The now-due report should be required to be submitted into the record, and Citigroup must be required to respond to the non-real estate predatory lending that ICP has documented.

* * *

     Further on the managerial and lack-of-standards issues ICP has timely raised, and to most of which Citigroup has declined to timely respond: Congress has now subpoenaed SSB's Jack Grubman in connection with its investigation of the WorldCom fraud. See, e.g., "Salomon Brothers May Face WorldCom Shareholder Suits," New York Times, June 29, 2002 Sec. C, Pg. 3; Col. 1.  Note that this also calls into question the due diligence that Citi's SSB claims to do in its underwriting for and other business relationships with the questionable subprime lenders identified in ICP's previous comments.  In terms of Citigroup's lack of environmental standards, controversy continues to grow around the proposed Camisea oil project, located in the rainforests of the Amazon's Lower Urubamba Valley on Peru's Pacific coast. "If this project goes through, this rainforest will be turned into a parking lot within our lifetimes," says an analyst for Friends of the Earth. Citigroup serves as the financial adviser for the project -- and it is entirely unclear what due diligence it has performed, what standards it has applied (despite claims Citigroup has publicly made about having standards in this regard).

     Beyond the FRB's participation in the OTS's formal meeting on July 8, 2002, ICP continues to urge the FRB to hold its own public meeting, under its own regulations -- the FRB is Citigroup's (and CitiFinancial's) primary regulator. On the current record the FRB could not legitimately approve Citigroup's applications and notices.

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of June 27-28, 2002: This just in, from the Federal Reserve: "This is in response to your letter regarding the notice filed by Citigroup, Inc.... to acquire California Federal Bank... Your letter requests that the Board hold hearings or public meetings on this notice. The Federal Reserve System will attend the formal meeting convened by the Office of Thrift Supervision on July 8, 2002... The oral testimony and written submissions of participants at the meeting will be made a part of the record considered by the Board in action on this notice. The Secretary of the Board, acting under delegated authority, has extended the Board's public comment period until July 8, 2002, in order to receive information provided at the meeting." [OTS contact information is below].

Update of June 24, 2002: The Office of Thrift Supervision will be holding a "formal meeting" on Citigroup's application on July 8; ICP has asked the Federal Reserve to co-sponsor the OTS hearing or hold its own hearing.  Citigroup is seeking to evade the predatory lending issues raised.   Documentation of presumptive predatory lending at CitiFinancial continue to flow in to Inner City Press, and then to the regulators. On June 24, ICP filed sixteen more exhibits, described in the comment summarized below.

June 24, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: ICP's Fourth timely comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a fourth timely comment opposing and requesting hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    ICP submitted detailed comments, with multiple CitiFinancial exhibits, on June 3 and June 10, 2002. As noted in ICP's June 17 submission, Citigroup's response was due on that day. A week later, no response from Citigroup has been received. For the record, the Office of Thrift Supervision ("OTS") has confirmed that it will be holding a formal meeting on Citigroup's Golden State-related application on July 8, 2002. See Exhibit 4.16 hereto. ICP reiterates its timely request that the FRB co-sponsors the OTS formal meeting, and/or schedule and hold its own public meeting, and extend the comment period accordingly.

    As bases for the denial of Citigroup's applications and for other appropriate enforcement actions, further pre-hearing documents annexed to this fourth timely comment include:

    Exhibit 4.1 hereto documents a loan made earlier this year (May 2, 2002) by CitiFinancial at 24.99% interest. To borrow $6,166.85, the customer pays $4,690.75 in finance charges, $563.22 for credit disability insurance, $353.35 for credit life insurance, and $250.00 in "property insurance." As reflected by the Disclosure Statement, the loan is "secured" by "Misc Pers[onal] Prop[erty]." The list of property on which Citigroup's Triton Insurance Company has written explicitly "Single Premium" credit insurance includes "various compact disks," a lawnmower, a leaf blower and various camera lenses. As demonstrated by ICP in this proceeding, CitiFinancial's only purpose in assembling "miscellaneous personal property" lists on consumer loans is to write insurance [FN: Question: does CitiFinancial actually repo and resell borrowers' personal compact disk collections (or fishing rods of ice chests, see ICP's June 3 submission)? Does CitiFinancial hold yard sales of such items? Our experience is, no. So (question that must be answered in this proceeding): why does CitiFinancial sell and encourage customers to buy credit insurance on such personal items? Why is this practice no predatory per se?], in this context a product that has no benefit to the borrower and is per se predatory.

    Exhibit 4.2 hereto is a print-out from CitiFinancial's Maestro computer system reflecting that the customer on June 13, 2002 "decided he didn't want per[sonal] prop[erty] protection. Had to backoff & when I did, it automatically jumped to $7500, need reapproval." Emphasis added. Here the CitiFinancial loan officer ("dee") characterizes giving in to a customer's resistance to (useless) personal property insurance and "back[ing] off;" note that when the customer tried to not get credit insurance from CitiFinancial, the Maestro computer system "automatically" changed the terms of the loan such that it could not be made without "reapproval." ICP has been informed by current and former CitiFinancial employees that this is one of CitiFinancial's stratagems for essentially involuntarily imposing credit insurance on CitiFinancial customers.

    As demonstrated in Exhibit 1 to ICP's June 3, 2002, submission, CitiFinancial bases its bonus on, inter alia, how much credit insurance can be imposed on loans, including both real estate and personal loans. To further confirm this for the record, Exhibit 4.3 hereto is the QUICPlan print-out for CitiFinancial's Morristown, TN branch for April 2002. As ICP's showed in its June 3 Exhibit 1, points are awarded in eleven different categories. If a total of sixty points is not reached, no bonus is given. Imposing credit insurance accounts for fully 30 points, broken down into credit insurance on personal loans, on real estate loans, on "Equity Plus" loans and a category referred to as "Non credit."

   CitiFinancial's focus on aggressively imposing credit insurance is further documented by Exhibit 4.4 hereto, an internal CitiFinancial document entitled "RocoPoly 2002: 2nd Quarter 2002 Insurance Kicker." It offers even greater "payouts" than the previously documented system, specifically for meeting aggressive "QUICPlan" insurance sales goals, even for a branch that scores only 50 (and not 60) on the overall QUICPLan goals.

    To further document that CitiFinancial's focus on credit insurance packing in nationwide in scope, Exhibit 4.5 hereto lists the level of premium imposed required to hit the Qualified Level ("QL" in the chart) and Superior Level ("SL" in the chart) in each of 48 states and the District of Columbia, on Personal Loans, Equity Plus, Fully Secured [that is, real estate loans] and "Non-Credit." The target numbers are calculated as dollars in insurance premiums per thousand dollars of loan.

    That this QUICPlan compensation scheme, which encourages insurance packing, is CitiFinancial-wide is reflected in Exhibit 4.6 hereto: CitiFinancial's "Focus" publication "of the Executive Office", dated January 2002. There is "A Message from Sandy Weill;" there is a RocoPoly logo and the question, "Are You Ready for the Knapp Challenge?" The [Michael] "Knapp Challenge" offers "Bigger Payouts" for "renewing those active Personal and Sales Finance Loans into Real Estate Loans... Succeed in the Knapp Challenge and RocoPolize your bonus!" Mr. Knapp becomes more direct in the "Focus" publication of April 2002 (Exhibit 4.7 hereto), where he states that "[a] project team has been in place for a few weeks designing a 'query' system to allow you to build your own cherry-picked lists from which to solicit your customers. Some of you may know that we've looked at doing this before and never came through, however, we're in a better position to handle that kind of technology at the branch level now." Emphasis added. CitiFinancial can now engage in types of "cherry-picking" that Associates never could. The next page of the April 2002 CitiFinancial "Focus" publication urges staff to "[I]n these uncertain times, serve your customers by giving them all of the information on insurance to make an informed choice on insurance." (Emphasis added). The subsequent "talking points" provided are simply an advertisement for taking out disability and credit insurance, with three "actual testimonials from [Citi's] American Health and Life Insurance Company" for each product. These are hardly "all of the information on insurance to make an informed choice on insurance."

    CitiFinancial's aggressive collection practices (documented in ICP's June 3, 2002, Exhibits with reference to "field calls" -- i.e. home visits -- by CitiFinancial employees) is further documented by Exhibit 4.8 hereto, a June 3, 2002 memo from CitiFinancial District Manager Jim Chakales to "the staff" stating that the collections "goals must be met by close Friday or arrangements made for Saturday work." Exhibit 4.9 hereto is a "Send Branch" message over the Maestro system stating curtly that "Three things to discuss 1. I am not going to beg you for foreclosures I will just write U up 2. I am not going to beg for R/E bus[iness] 3. Need 20 LPE Control dues." (Emphasis added, spelling left as in original; note that "LPE" means "Loans Per Employee"). Exhibit 4.10 hereto is another of CitiFinancial's Jim Chakales' memos, "Results from Real Estate Blitz Tonight, Knoxville West District - Jim Chakales," showing that CitiFinancial Branch # 101 made 18 calls, four contacts, and application only for "RBO" -- refinance balance only, i.e. flipping. CitiFinancial's Jim Chakales hand-wrote on the memo, regarding Branch # 722, "This is two nights without an app[lication]?" Apparently flipping is better than nothing (hence the prevalence of flipping at CitiFinancial).

    Exhibit 4.11 hereto documents a real estate-secured loan of a ten-year term by CitiFinancial at 15.23% interest (June 11, 2002). To borrow $15,207.00, the customer pays $13,505.40 in finance charges, $301.77 for joint credit life insurance.

    One of the first things that Citigroup did upon renaming the ex-Associates branches CitiFinancial was to systematically seek to raise the debt levels of Associates' borrowers. Exhibit 4.12 hereto is a memorandum from CitiFinancial's Donna Delude, Don Moroz and Wes Iseley to the "'New' CitiFinancial Branches" instructing ex-Associates staff to call "each of your current customers" and offer higher loans -- "a great upsell opportunity to an Equity + or R[eal] E[state] loan...".

    Among the purported reforms to which CitiFinancial has attempted to limit review of CitiFinancial is the announced elimination of single premium credit insurance on real estate loans (Exhibit 4.1 demonstrates that CitiFinancial still sells single premium credit insurance on non-real estate loans, which are more than half of its business). Exhibit 4.13 hereto is a CitiFinancial's "Field Implementation" memo dated May 28, 2002, (finally) informing branches in Alabama, Idaho, Indiana, Maine, Maryland, Mississippi, New Hampshire, Nebraska, Rhode Island, Tennessee, Texas, West Virginia and Wisconsin that "[s]tarting June 3, 2002, an offer is being sent to certain existing Real Estate secured loan customers (including Equity Plus) to switch their current Single Premium Credit Insurance Products to Monthly Premium Credit Insurance." Note that customers with "Pre-Computed Real Estate Loan[s]" and customers deemed "Cross-Border" are "exceptions" to whom the offer is not sent. The memo says, "attached are a few questions and answers that may be helpful to you when speaking with a customer about switching to Monthly." The question is, helpful how? The Q&A (Exhibit 4.14 hereto) essentially directs CitiFinancial staff to emphasize the drawbacks of Monthly Premium Credit Insurance, to say "your payment may be higher due to a variety of reasons... whatever product(s) you currently have as Single Premium Credit Insurance will be the only products(s) you can change to Monthly Premium Insurance provided you still quality for those products... It will be necessary to complete an insurance applications." (Emphasis added). Significantly, the Answer to the Question "Why can't I pay for my Home and Auto Security Plan or Safeguard on a monthly basis too?" is "Those products were not designed or priced for the fees or premiums to be paid on a monthly basis." (Emphasis added). So, CitiFinancial essentially discourages even real estate loan customers from switching from Single Premium Credit Insurance, and continues to offer ONLY single premium "Home and Auto Security Plan" and "Safeguard" insurance.

    Finally, for this submission, Exhibit 4.15 hereto is a "CitiFinancial Interoffice Memorandum" dated May 20, 2002, reporting "Major" and "Significant" errors in "Lending Policy." It is ICP's position, based on the documentation submitted to date in this proceeding, that CitiFinancial's policies are in many instances predatory. Where even these policies are, by CitiFinancial's own recent admission, violated, the need for a formal evidentiary hearing, and to deny Citigroup's applications to expand, is clear.

    While, despite the FRB's own rules, Citigroup has yet to respond to ICP's June 3 comments and exhibits, Citigroup has made certain statements in the public record in recent days. The American Banker of June 24, 2002 ("Too Much Information? Citi Mystery-Shop Sparks Debate," Page 17) reports: [snip]

    But the memo, Exhibit 3 to ICP's June 3 submission, had nothing to do with "enhancing [CitiFinancial's] confidence" -- the memo was not distributed to customers, but to CitiFinancial "District Managers and Branch staff." And the issue is not whether Citigroup had announced that it "would start a mystery-shopping program" at some point. In the memo, W.R. Miller states exactly when the "Mystery Shopping Test" will take place ("in December and complete in January") and what will be tested. In fact, stating when the "Mystery Shopping Test" will end seems less likely to "ensure that [Citi's] policies were being followed" than to implicitly instruct employees of when to comply with the law, and when to cease doing so.

    Also, New York Newsday of June 23, 2002 ("Taking Hispanics Into Account," Page F08) reports that ICP "also notes that, according to government home mortgage statistics, Hispanics are denied prime loans far more than whites. [ICP] said Citigroup's denial rate to Hispanics is worse than the industry national average. Indeed. In New York, Citigroup denies Hispanics conventional loans almost 3.5 times more than whites, according to the 2000 Home Mortgage Disclosure Act. The industry average is 1.4 times. 'We, along with federal and enforcement agencies, do not believe that selective HMDA data give a complete picture of the lending process,' said spokesman Mark Rodgers of Citigroup." Newsday independently confirmed ICP's HMDA analysis; Citigroup's lending to Latinos is substantially more disparate that other lenders, even in Citigroup's headquarters MSA.

     Further on the managerial and lack-of-standards issues ICP raised on June 3, 2002, and to which Citigroup has declined to timely respond: last week Citigroup (along with UBS and Credit Suisse) was sued in federal district court in Manhattan for having provided money to help support the South African apartheid regime. "Were it not for the conspiracy of these financial institutions and companies, men, women, children and families would not have suffered from forced removals, forced labor, imprisonment, banishment, kidnapping, torture, disfigurement, murders, massacres, psychological trauma and terror," the suit says. A Citibank representative declined to comment to Bloomberg News. The FRB must inquire into this and the other adverse managerial issues [FN: Also last week, Citigroup dropped its appeal to a sex discrimination verdict against its U.K.-based securities arm. See, e.g., the Evening Standard (London), June 19, 2002. Combined with the Smith Barney sex discrimination case(s), the FRB must inquire into these issues as well] which ICP has timely raised in this proceeding.

    The Board should schedule and hold a formal hearing (see supra), and, on the current record, Citigroup's applications should not be approved.

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director

Update of June 19, 2002: on June 14, the Office of Thrift Supervision telephoned ICP, responding to ICP's request for a formal meeting on Citibank FSB's applications to acquire Golden State Bancorp and Cal Fed Bank. The OTS has proposed July 8, 2002, as the date for the formal meeting; this was confirmed in an OTS letter dated June 18. ICP has now urged the Federal Reserve Board, to which Citi has also applied, to co-sponsor any OTS formal meeting. Developing...

Update of June 17, 2002: ICP has submitted a third comment to the Federal Reserve Board, noting among other things that on June 11, Fed Governor Olson gave a speech about predatory lending, saying among other things that "there is economic advantage and potential for abuse in the way [a loan] is priced." ICP has submitted a third comment, including concerning a recent sample CitiFinancial loan, which was dramatically overpriced as reflected by CitiFinancial's new offer a mere six months later:

   An applicant from in Jefferson City, Tennessee, went to CitiFinancial for a home-secured loan earlier this year and was charged a 14.5% interest rate. CitiFinancial employee Roy Ogle told the customer that he had to agree to credit insurance in order to get the loan; only a month after loan closing did the customer get a letter saying that insurance is not required. The customer then applied elsewhere seeking a lower rate and was offered 8.4% by another (non-Citigroup) lender. CitiFinancial's Roy Ogle then telephoned offering him a refinance at a 10% fixed rate. This calls into question Citigroup's claim that CitiFinancial "prices by risk" -- it is difficult to understand any credible, across-the-board model resulting in a drop of 4.5 interest rate points is less than six months. Essentially, CitiFinancial charges applicants the absolute (and arbitrary) maximum it can gouge then for, then only drops the rate when another lender makes a lower offer. It would appear that under Fed Governor Olson's description of predatory lending, CitiFinancial is a predatory lender. In his speech Gov. Olson asked, regarding pricing, "is it arbitrary or did you develop it according to some formula that is based on something other than somebody's individual judgment?" The above-described CitiFinancial loan (and many of the other CitiFinancial loans regarding which ICP has submitted documents to the Fed opposing Citi's Golden State application) fail Governor Olson's -- and presumably the Federal Reserve Board's -- test. On June 11, ICP hand-delivered to the Federal Reserve Board in Washington originals of its June 3 and June 10 exhibits, which are described below in this Report.

    On June 5, the New York Fed wrote to Citigroup's outside counsel stating that "[i]f Citigroup wishes to respond... your comment should be received by us within eight business days of this letter; please provide a copy of your response directly to [ICP]... Please advise [the FRBNY] within three business days of the date of this letter whether you will be submitting any comments."

   Two weeks after submitting its timely comments, ICP has received neither any response from Citigroup, nor notice of Citigroup's intent to respond. The Fed's comment period runs to July 5, 2002; the New York Fed's contact information is below in this Report. 

June 10, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

RE: Second timely comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & Cal Fed & affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

   On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a second timely comment opposing and requesting hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    ICP submitted a detailed comment on June 3, 2002, to which Citigroup has yet to respond. On June 6 ICP received from Citigroup a portion of its application to the Federal Reserve (the "FRB"), and notes that this Application does not mention much less address or update the fact that the Federal Trade Commission is prosecuting a lawsuit against Citigroup for predatory lending, and has complained to the Court regarding Citigroup's lack of compliance with discovery orders in the case. Despite Citigroup's previous representations to the FRB and others regarding its purported subprime lending reforms, no update is provided. On the current record, a public meeting is necessary, and Citigroup's applications should not be approved.

    Since Citigroup has not addressed the issue in its hastily-prepared application (filed a mere 10 days after its announced its proposal to acquire Golden State), ICP has reviewed Citigroup's Web site in search of Citigroup presentations addressing these issues. Under the heading "Citigroup on the Issues," Citigroup's web site provides updates dated August, October and December 2001 -- nothing in 2002. In the most detailed of the updates, Citigroup states inter alia that part of its reforms involves "mystery shopping." However, ICP's initial comment included as Exhibit 3 a CitiFinancial Southeast Division Memorandum to all "Region Managers" (subsequently sent to all branch managers, as reflected on the handwritten note on the memo), informing them of the start and stop dates of the "Mystery Shopping Test," and of the specifics of the test:

"Telephone: The test is do we service every customer consistently, i.e.: do we quote the same rates, LTVs, etc.? Are we consistent?

Branch visits: A minority and a caucasian will visit the same or separate branches and request identical loans. The test is do we quote the same rate, LTV, etc., and do we give equal service to each?"

  The memo's author, W.R. Miller, asked for confirmation that all branches had been informed, prior to the start of the "Mystery" shopping test. Clearly, this is NOT "mystery" shopping.

   This memo was cc-ed to a higher-up in CitiFinancial, K.C. Mead, who took part in a November 27, 2001, investor meeting regarding CitiFinancial and along with Michael Knapp made a presentation about CitiFinancial's branch business. Thus, CitiFinancial at the highest levels knew that its Region and Branch managers were being given a heads-up and a cheat-sheet for the supposed "Mystery" Shopping Test.

   Citigroup's most lengthy update also makes claims that CitiFinancial's compensation system has been reviewed to make sure that it is not "counter to the ['reform'] initiatives." However, ICP's initial comment, in Exhibit 1, presented a compensation print out for the first quarter of 2002 showing that branch managers' bonuses ride on how much credit insurance they can impose on loans including real estate loans.

    Citigroup also makes various claims about its "Foreclosure initiative" of reviewing certain ex-Associates loans. ICP has closely tracked one such loan, initially made by Associates' First Family / Allied Credit to [a customer] of Powell, Tennessee. The loan was taken out by a relative of [the customer], without her knowledge. Nevertheless, on January 26, 2001, CitiFinancial wrote to [the customer] "welcoming" her to CitiFinancial, and stating that "nothing about your loan has changed." The customer continued to contest the loan, but CitiFinancial kept demanding and receiving payments. Suddenly, on March 26, 2002, Kim Van Airsdale, CitiFinancial's Manager of Foreclosure/REO in Baltimore, directed branch manager David Johansen to "suspend foreclosure" and "pay off the account" in full. Ms. Van Airsdale's "privileged and confidential memo" informs Mr. Johansen that "though it is not necessary to obtain permission for this plan from the borrower, the designee should attempt to convey our intentions to the borrower."

    On April 4, 2002, the customer went to CitiFinancial's office. She had not yet received notification of the plan; she offered to make a payment, and asked to see her file. She was told that her file was not available, and Mr. Johansen indicated a willingness to accept her payment. Subsequently, she was told that the loan was being forgiven "because you're sick." According to sources, district manager Nancy Neel was present -- in fact, Ms. Neel was in charge of this loan through much of its payment history, as she has worked at Associates prior to its acquisition by Citigroup. The customer asked, "what about the money I've paid you on the loan?" No offer has been made to refund that money. Note that CitiFinancial accepted at least $1,100 in payments on this loan.

   Last week, the customer went to the CitiFinancial office again and requested her documents. Mr. Johansen pulled out a 3-inch thick file but only gave the customer eight pages, none of which related to her payment history.  The customer telephoned District Manager Nancy Neel and was told that she is not entitled to a copy of her payment history. The customer then telephoned customer service in Texas and spoke to a Clint Robinson. The note provided to the customer shows the check being paid to Wells Trucking Co., but on her original it shows her as getting the money. She never got it. Other documents in the case show that an employee of First Family forged the customer's signature to a $1,150 personal loan that was made so they could make a payment.   (Documents regarding this case are annexed hereto as Exhibit 2.7).

    Further documents annexed to this second timely comment include:

--a CitiFinancial "Rocopoly" chart, further evidencing the compensation scheme at CitiFinancial wherein insurance premiums imposed on loans including real estate loans form the basis of "payouts" to CitiFinancial employees (Exhibit 2.1);

--a CitiFinancial memo stating that "[e]very employee in the branch will call the 'Opportunity' (default) worklists 'JUST TWO' hours everyday... they have to be different than the last attempt (i.e. home/job, job/reference, job/home)" (Exhibit 2.2, emphasis added);

--a series of February 11, 2002, e-mails among CitiFinancial's David Baer, Nancy Neel, Tom Palmatary, Richard Taylor and a CitiFinancial outside counsel regarding "Hines v. First Family et al." including a list of 27 properties to be "quit claimed back to Weston Tucker" (Exhibit 2.3) -- note that Citigroup has not submitted into the record any update of the predatory lending litigation pending against it;

--a series of April 30, 2002, e-mail among many of the same parties including higher-ups Ed Starkey, Peter Schaaf and Dave Roberts, regarding a "Non-Conforming Identification Process" in which CitiFinancial is only now "identify[ing] and label[ing] non-conforming acquisition accounts in the Maestro / Action system" (Exhibit 2.4). The accompanying CitiFinancial estimates that each branch will have "between 50 and 100" such accounts, including mobile homes, "rentals," "LTVs over 100%," etc. -- note that this is nearly a year and a half after Citigroup acquired The Associates.

   ICP will be submitting further comments; we formally ask that Citigroup be required to submit its response to ICP's June 3 comment within, at most, eight business days thereof -- that is, during the comment period so that ICP has an opportunity to reply. Unless the FRB dismisses Citigroup's applications (as ICP is requesting), the FRB should schedule a hearing at the earliest possible time, perhaps in conjunction with the Office of Thrift Supervision, to which Citigroup has also applied and to which ICP has also submitted a timely request for a formal meeting / hearing.

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director
Inner City Press/Community on the Move
& Fair Finance Watch

cc:  Office of Thrift Supervision, West Region
Attn: Regional Director Charles Deardorff, et al.
2001 Junipero Serra Boulevard, Suite 650
Daly City, California 94014-1976 

                                                                                                                      June 3, 2002

Board of Governors of the Federal Reserve System
Attn: Ms. Jennifer J. Johnson, Secretary and Governors
20th Street and Constitution Avenue, N.W.
Washington, DC 20551 [By Fax]

RE: Timely comment in opposition to, and requesting a hearing on, Citigroup's applications and notices to acquire Golden State Bancorp & California Federal Bank and their affiliates

Dear Chairman Greenspan, Governors, Secretary Johnson:

     On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Fair Finance Watch (collectively, "ICP"), this is a timely comment opposing and requesting hearings on the applications and notices of Citigroup, Inc. (along with its affiliates, "Citigroup") to acquire Golden State Bancorp and its affiliates, including Cal Fed Bank (collectively, "Golden State").

    ICP has become increasingly concerned with apparent predatory lending practices at Citigroup's high-rate "subprime" lender CitiFinancial. Throughout 2002, current and former CitiFinancial employees have provided ICP with documents indicating pervasive anti-consumer practices at the company, including interest rates over 20%, property lists taken only in order to impose credit insurance, cynical "heads-up" messages sent to employees prior to purported "Mystery Shopping" tests, etc.. Each of these will be discussed below, and is documented in the attachments to the Comment. ICP timely requests a hearing on Citigroup's practices and on this $5.8 billion acquisition proposal, which is subject to the Community Reinvestment Act, 12 U.S.C. 2801, et seq. ("CRA").

    Under the CRA, the records of fairness by Citigroup's lenders must be considered in connection with this expansion proposal. Additionally, this proposal would subject yet more consumers to the Citigroup practices documented below and in the exhibits. Under the Bank Holding Company Act, the compliance including consumer compliance records of Citigroup's affiliates must be considered.

    Disparities in Citigroup's prime lenders' 2000 Home Mortgage Disclosure Act ("HMDA") data and 2001 Loan Application Registers ("LARs") are analyzed infra in Section II. Section I describes CitiFinancial's actual current practices, as opposed to the theoretical practices alluded to in Citigroup's various vague reform announcements.

I. CitiFinancial's Problematic ("Predatory") Practices

     Despite Citigroup's purported reforms regarding credit insurance, ICP has received documentation that CitiFinancial managers' bonuses still ride on "premium per loan" imposed on real estate and other loans. See Exhibit 1 hereto: on a quarterly basis, points are awarded in eleven different categories. If a total of sixty points is not reached, no bonus is given. Imposing credit insurance accounts for fully 30 points, broken down into credit insurance on personal loans, on real estate loans, on "Equity Plus" loans and a category referred to as "Non credit." Branches, Districts, Regions and Divisions are all judged (and compensated) based on how much credit (and non-credit) insurance is sold.

   Exhibit 2 hereto, a document CitiFinancial refers to as the "Shelf Space Report," demonstrates that for the CitiFinancial District in question, the average size of personal loans was $6,279, approximately 20% of which constituted payments for insurance. Given the way Citigroup compensates its employees, insurance packing should come as no surprise.

    In fact, CitiFinancial does it best to avoid surprises, including by informing employees in advance of the specifics of the purported "mystery shops" that Citi has presented as a safeguard against predatory lending. Exhibit 3 hereto is a memorandum to CitiFinancial's Southeast Division from Division leader Wendell R. Miller. In the memo, Mr. Miller tells all branch staff when to be expecting (and to be prepared for) the "mystery shopping test" that Citigroup had told its regulators would be performed. The dates of the "mystery" shop are specified, as well as what will be tested for: "do we quote the same rates, LTV, etc." The implication is, be sure to keep the offers consistent during the duration of the test. The ending date of the "mystery" shopping is also specified. The memo was cc-ed to Tim Baechtold, Division Operations Manager, and to K.C. Mead and Ed Starkey.

    Exhibit 15 hereto documents a loan made earlier this year (March 15, 2002) by CitiFinancial at 25.33% interest. To borrow $12,316.02, the customer pays $9,518.58 in finance charges, and $1,140.61 for credit disability insurance, single premium. The collateral is a 1994 Dodge Caravan -- it is dubious that this eight year old vehicle is worth $12,000. But CitiFinancial's purpose in assembling property lists on consumer loans is to write credit insurance.

    Exhibit 12 hereto is a CitiFinancial property list reflecting credit insurance on such items as random audio and video tapes. Exhibit 13 hereto is a CitiFinancial property list from the Maestro computer system reflecting credit insurance on such items as an ice chest and fishing rods.

    ICP raised the absurdity and presumptive predatory nature of this practice -- selling credit insurance on items such as ice chests on which CitiFinancial would never foreclose or repossess -- directly to Citigroup's CEO at Citigroup's April 16, 2002, shareholders' meeting. Citigroup's CEO declined to respond to that part of ICP's question(s); Citigroup must be required to address and attempt to justify these practices in this application proceeding.

    What we are seeing is that the "reforms" that CitiFinancial has announced are not being implemented, or are much less meaningful that Citigroup has claimed. Citigroup stated with fanfare that it was discontinuing single premium credit insurance -- on real estate loans. But such insurance and "ancillary products" continue on CitiFinancial's many personal loans; employees are still in February 2002 being directed to present customers with loans with loan to value ration "maxed-out," and hurdles are thrown up to prevent customers refinancing with other lenders are more favorable terms.

   Despite Citigroup's "pledge" that applicants with prime credit histories would be given prime-rate loans, Exhibit 4 hereto reflects that at CitiFinancial, applicants with "Excellent" credit profiles are charged 18.99% interest -- on loans that are secured by the borrower's home.

    Exhibit 5 hereto is a memo from CitiFinancial Regional Manager David Baer dated February 25, 2002, instructing District Managers that CitiFinancial's "policy is that all R[eal] E[state] loans are presented to customers at max[imum] L[oan] T[o] V[alue ratio]. If the branch cannot sell you get involved... If you cannot sell Joe or myself must be involved.. Make it happen." Sources indicate increasing pressure to make the largest loans possible to customers -- so that no equity without a lien on it remains in the customer's house. This is also a way to deter customers from refinancing with other lenders at lower rates.

    Exhibit 14 hereto is a print-out from CitiFinancial Maesto computer system reflecting the type of "field call" which is supposedly no longer taking place at CitiFinancial. Next to the date 2/20/02, the notation is made: "Need to go by his house." Source indicate that harassing "field calls" continue to this date, often mischaracterized as "inspections of collateral." The extent of field calls is documentable through employees' "mileage reports." Source indicate that Chattanooga CitiFinancial manager Carter Payne continues to do these money-collecting "field calls," and that an investigator who Citigroup sent down to Tennessee in response to questions ICP has raised, Keith Black, spoke only with CitiFinancial district managers Jim Chakales and Nancy Neel, and employees May Maughn and Freda Monday, but that Mr. Black "wasn't concerned with the violations relayed in [ICP's] article but was concerned about how [ICP] got it." As was initially the case in South Carolina last year (see below), it seems more like a cover-up, or an attempt to plug leaks rather than reform practices.

    Exhibit 6 hereto is a print-out from CitiFinancial's Maestro computer system reflecting an attempt on March 21, 2002, to "upsell to $7,500 on personal loans but he only wanted the $5,000. And had received mail solicitation for payment of $129.68, that's what he wanted."

    Exhibit 7 hereto documents a CitiFinancial loan on March 22, 2002; the [customers] end up with a $631.23 payment for Joint Credit Life, and a $1,261.20 payment for Joint Credit Disability. All this for a loan for under $7,000, at an interest rate of 27.59%.

    Exhibit 8 hereto documents a CitiFinancial branch manager on March 20, 2002, asking for approval to raise a customer's interest rate from 18.99% to 20.99%, in exchange for a "new advance" of a mere $700.

Other Sample CitiFinancial Loans

    [Customers] applied for a $66,000 mortgage from CitiFinancial's office on Clinton Highway in Knoxville, Tennessee. They were told that no loan would be issued without them also taking out credit insurance. Due to the insurance packed in to the loan, after twelve on-time payment, their pay-off amount grew to $72,000. CitiFinancial's 1-800 customer service number was told of this, but nothing was done. A print-out from CitiFinancial's "Maestro" computer system regarding this account are attached as Exhibit 9 hereto. These print-outs indicate that when the customers sought to payoff their loan and refinance with another company, CitiFinancial staff "could not reason with her... called customer adv[ising] her she would be paying broker fees, appraisal fees, points and so forth. She does not care, says she is getting a lower payment and getting life insurance too... I tried to talk her out of this..." The next day it is noted, under the rubric "Sales Offer: Save a payoff" that the customer was "in office requesting all insurance be cancelled on her loan. Claims she was advised by someone to do this."

   Another CitiFinancial customer... of Bulls Gap, Tennessee, had $14,000 of insurance packed in to a $33,000 loan. He was told that he had to take the insurance in order to get the loan. CitiFinancial's District Manager was told of this, and yet nothing was done.

    A customer of CitiFinancial's West Knoxville office... had $14,000 of insurance packed in to a $42,000 loan. When she sought to cancel the insurance, she was first told that it was not possible. Then, after she persisted, she was given a handwritten receipt. Only after further complaints was she given a computer print-out proving that the insurance was cancelled.

   At CitiFinancial's Oak Ridge office, [a] customer... applied when she was 65 years old. But CitiFinancial filled out her insurance forms stating that she was 61. Complaints were made, but American Health & Life never investigated; nor did Citigroup.

    At the West Knoxville office, CitiFinancial's branch manager arranged for a friend of his to sell a pick-up truck to [a] CitiFinancial borrower... The truck quickly broke down, but the (CitiFinancial) loan is still due. The transactions involve using a CitiFinancial personal loan to pay off another CitiFinancial loan, i.e., flipping.

   Customer...  her husband applied for a loan through a CitiFinancial office in Knoxville. [The husband] was and is being treated for a heart condition. The insurance form requires an answer regarding pre-existing health conditions. The [customers] were told to leave this blank, and were charged for insurance, rolled into the loan. When they sought a copy of the final version of their documents, they found that CitiFinancial had subsequently checked the box, "no heart condition," and sent the form to American Health & Life. Inquiries were made, but no actions were taken.

    The branch manager of CitiFinancial's West Knoxville office put over $7,000 worth of insurance on a loan to [a customer.  The customer] had initially been offered an 8.5% rate by the CitiFinancial district manager. But when he went to sign documents the rate was raised to 9.9%. The district manager stated that this was due to "the appraisal coming in low" -- but at the time the district manager offered 8.5%, CitiFinancial's lowest rate for this type of loan was 9.9%. [The customer] was not told about the insurance until the day of closing and was not told it was optional.

   [Another customer] got a mortgage from CitiFinancial's Crossville, Tennessee office and was sold insurance for which she did not qualify, due to a health condition. She did not answer the health question on her insurance form -- but someone in the CitiFinancial office did, on their copy. When she was refinancing her mortgage the Crossville office was called about a lien which was recorded in July of 2001 by that same CitiFinancial office. [The customer] had rescinded but they never released the lien. When [the customer] fell behind she told them she was refinancing her mortgage but they continued to call her and threaten her with foreclosure. The CitiFinancial district manager Bill Bonds was called and informed, but did nothing about the threats or insurance fraud.

    The transactions described above, and documented in the Exhibits hereto, did not take place in offices that Citigroup acquired along with Associates First Capital Corporation -- these were Commercial Credit offices, owned by Travelers; since Travelers acquired Citicorp, they have been CitiFinancial offices. Complaints about forgery on insurance documents, about illegal insurance packing, etc., have been directed to district managers, regional managers, and the so-called "home office," via its 1-800 toll free complaint number. And yet nothing has happened; nothing has changed or improved.

    The irregularities extend to efforts to artificially under-report delinquencies on loans. For example, a CitiFinancial employee in Tennessee named Jack Lay was found to be using his own money to make partial payment in order to advance customers' due dates and thereby conceal delinquencies; more systematically, loans are deemed non-delinquent due to a so-called "tornado deferment," regardless of the weather.

     Exhibit 11 hereto is a CitiFinancial audit which found a variety of errors and worse:

"The first mortgage balance of $69,500 was falsified and lowered to $46,000 during the verification process in order to lower the loan-to-value (LTV). As a result, the recalculated LTV of 107% exceeded the maximum approved LTV of 80%." (Holland)

"Income used to qualify the loan was not verified. Based on the verified income the recalculated ability-to-pay (ATP) of 23% (Springer) and 21% (Childress) is below the minimum requirement."

"The loan did not adhere to Tennessee state regulations, as the $150 title search fee and points were charged to the borrower."

"The following RESPA requirements were not adhered to: the title search fee or the title insurance was not disclosed on the Settlement Statement. The points were not disclosed on the Good Faith Estimate. There was no evidence the branch provided a copy of the Customer Handbook on Adjustable Rate Mortgages to the borrowers. It was determined that the branch does not stock the handbook. The Section 32 Mortgage Disclosure form was not in the file."

"Our review of fourteen accounts with waived late charges noted twelve instances where the branch waived late charges when payments were made or issued a disbursement from the income account (INC55) and posted it to the account in order to advance the paid-to-dates. A distortion of delinquencies is considered to have occurred, as the accounts would have been carried past due."

   There appears to be systemic under-reporting of delinquency at CitiFinancial. Pressure is brought to bear on loan officers to make a minimum of 20 loans a month. When some of these loans fall into delinquency, this is cured by issuing new loans (i.e., flipping), or by advancing the payment-due date, sometimes by making a payment as small as five dollars.

    These practices are systemic, and systematized, at CitiFinancial nationwide. In CitiFinancial's "Maestro" computer system, there is a so-called "Upsell Challenge List," of CitiFinancial personal loan customers who should be solicited to take out mortgages, often in the form of so-called "Equity Plus" loans, the blended interest rates on which are kept a half percentage point below the triggers of the Home Ownership and Equity Protection Act, HOEPA. Disclosure forms, under RESPA and otherwise, that are required to be signed by borrowers are often forged and back-dated.

    For the record, in the FTC's ongoing litigation against CitiFinancial for predatory lending (See Federal Trade Commission v. Citigroup, Inc., et al., Civil No. 010 CV 0606 (U.S. District Court for the Northern District of Georgia, Atlanta Division, filed March 6, 2001), on March 5, 2002, the FTC filed a detailed motion and an affidavit by Michele V. Handzel, who worked at CitiFinancial for a year following Citi's acquisition of Associates. Among other things, Ms. Handzel states:

After September 2001, using the [Debt Relief Plan] on Maestro made it easier to me and other employees to automatically include credit insurance in the proposed monthly payment quote. We no longer had to manually calculate how much credit insurance could be slid into the loan without exceeding the proposed monthly payment; Maestro automatically performed this calculation... CitiFinancial put much more pressure on employees than Associates did to include as many credit insurance products and ancillary products as possible on every loan... Branch Managers, such as myself, were required to come in during loan closings if a branch employee was having trouble selling the insurance... Collections practices were more aggressive at CitiFinancial than at The Associates. CitiFinancial had a policy whereby loans were charged-off after two months of delinquency, rather than six months like at The Associates. Thus, there was a greater urgency to collect on a delinquent account before having to charge it off. Consequently, this policy also results in more flipping because the company did not want to lose the accounts and the profits generated by those accounts to a charge-off.... [W]e were given a mouse pad which we were required to keep on our desks near our computers. The mouse pad contained instructions on how to automatically include credit insurance on loans when soliciting customers over the phone... CitiFinancial instructed us to remove the mouse pads from our desk when banking examiners came to audit my branch in May 2001.

    It is important to note Ms. Handzel's statements about CitiFinancial practices that are even more anti-consumer than Associates' were. The last above-quoted statement -- that "CitiFinancial instructed us to remove the mouse pads from our desk when banking examiners came to audit... in May 2001" -- raises troubling questions. The Federal Reserve Board in mid-2001 announced in its Citigroup - EAB order that it would be conducting an on-site examination of CitiFinancial. There is now sworn testimony that CitiFinancial attempted to defraud the examiners. This must be addressed in this proceeding. Given that the Federal Reserve is in charge of supervising CitiFinancial, as BHC subsidiary, and has committed to examine CitiFinancial, it is important to note Citigroup's response to the FTC's March 5, 2002, motion: Citigroup claims that it should not have to produce documents relation to "CitiFinancial's sales training, advertising and loan solicitation practices, and employee compensation" (FTC Requests 62-66), arguing that these "are not reasonably calculated to lead to the discovery of admissible evidence." But such information is directly relevant to the FRB's supervisory duties, and to the FRB's statements regarding CitiFinancial in the 2001 Citi-EAB Order.

    In 2001, ICP looked closely at CitiFinancial's practices in South Carolina, including the forgery of documents, the flipping of loans, and, perhaps most outrageously, CitiFinancial's gagging of its employees. See, e.g, "Citigroup Hires Prominent Lawyer in Loan Abuse Case," Reuters, July 27, 2001; "Citi Corroborates Two Allegations," American Banker, July 30, 2001). To ICP's knowledge, the Federal Reserve has yet to act on the troubling matter of CitiFinancial gagging its own employees: intimidating them from speaking to regulatory authorities and examiners.

   Following the raising of some of these issues, the FRB in its Citigroup - EAB Order of July 2, 2001, stated that:

the Board will conduct a thorough examination to assess the effectiveness of that implementation at Citigroup's subprime affiliates, CitiFinancial and CitiFinancial Mortgage... The Board also will consider any information gathered in these reports or the examination in reviewing future proposals by Citigroup...

    Five months following the above-quoted Fed statement (that the FRS "will conduct a thorough examination"), Citigroup on December 14, 2001, wrote to the FDIC that

the Federal Reserve Board required, as a condition of its [EAB] approval, an examination of CitiFinancial, to confirm implementation of the progressive lending initiatives adopted by CitiFinancial in connection with its acquisition of Associates. That examination should not delay these applications, however, as suggested by ICP... The Federal Reserve Board will conduct that examination and take action following that examination as appropriate. (Emphasis added).

    From this phrasing, in a December 14, 2001, letter from Citigroup's Carl Howard to the FDIC, it appears that the Fed had still not completed the examination of CitiFinancial, five months after it was announced in mid-2001 as a "condition" for the FRB to approve Citi-EAB. The exam must be completed, and the results disclosed and comment allowed thereon, in this Citi-Golden State proceeding. ICP is formally requesting that the FRB deny Citigroup's expansion application; it is important to note that the FRB denied a Shawmut Bank application in New Hampshire, while a Department of Justice investigation of Shawmut's lending was pending. Shawmut National Corporation, Order Disapproving Acquisition of a Bank and Formation of a Bank Holding Company, 80 Federal Reserve Bulletin 47 (January, 1994). Here, Citigroup has been sued for predatory lending by the FTC; even beyond that pending suit, the adverse issues raised above and documented in the Exhibits hereto militate for a hearing on, and denial of, Citigroup applications. If Citigroup were allowed to acquire Golden State -- which ICP opposes -- many more consumers would be subjected to the practices described above. Citigroup has stated its intention to expand CitiFinancial in Mexico and in the Latino community more generally, including through this proposal.

II. DISPARITIES IN CITIGROUP'S 2000 HMDA and 2001 LARs

   The most recent publicly available Home Mortgage Disclosure Act ("HMDA") data is for 2000. In this section, ICP timely enters into the record disparities in Citigroup's 2000 lending, as reflected by HMDA data. ICP has also obtained from Citigroup certain of its 2001 Loan Application Registers ("LARs"). ICP has begun analyzing these Citigroup LARs, with particular reference to the presumptively predatory practices described above. First:

    In 2000 in the New York City Metropolitan Statistical Area ("MSA"), for conventional home purchase loans, Citibank, N.A. denied loan applications from African Americans more than five times more frequently than applications from whites. Citibank denied Latinos 3.5 times more frequently than whites. This is much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2000 were 2.20 for African Americans, and 1.97 for Latinos.[snip - contact ICP for more recent data]

    Citigroup is also deeply involved in questionable subprime lending through its investment banking operation. For example, Salomon Brothers Realty Corp. has provided a $100 million repurchase line of credit to Long Beach Mortgage -- a subprime lender that was sued by the Department of Justice of race discrimination and pricing disparity grounds. Salomon Brothers Realty Corp. provided warehouse lines of credit of $775 million to subprime lender New Century Mortgage Corporation ("New Century"), requiring New Century either to securitize $1 billion of loans through Salomon Smith Barney as sole underwriter, or, in the alternative, to sell $1 billion in loans to Salomon Brothers Mortgage Securities VII for their own securitization.

    Salomon Smith Barney has been the underwriter for the subprime mortgage backed securities issuances of Centex Home Equity. What standards do SSB and Citigroup have for working with subprime lenders? Apparently none. Citigroup has previously sought "confidential treatment" for even the names of the subprime lenders with which it does business. The FRB should obtain and release this list, and hold the requested hearings.

III. OTHER ADVERSE CITIGROUP ISSUES WHICH MUST BE ADDRESSED

    Beyond the above-sketched CRA and fair lending matters, there are a number of important managerial and compliance issues into which the Federal Reserve must inquire, in this proceeding. These include Citigroup's transactions with Enron (and Dynegy, see infra); the developing "analyst" scandal (regardless of Citigroup's jumping on the bandwagon of changes imposed on Merrill Lynch by the N.Y. attorney general and others); money laundering; and possible insider trading, including on this Citigroup - Golden State proposal. In reverse order: see, e.g., Reuters of May 22, 2002 ("Did Investors Get Tipped on Golden State Merger?").  See also, Indian Express Online Media's Financial Express of May 29, 2002, "SEBI to Look into Violations of Insider Trading Norms in Polaris Merger Case:" "The Securities and Exchange Board of India (Sebi) has decided to look into the matter of possible insider trading in the case of merger of Polaris Software Laboratories Ltd (PSLL) with a Citigroup company Orbitech Solutions Ltd. ." Emphasis added.

    Despite Citigroup's hiring of ex-Federal Reserve anti-money laundering specialist, it is not clear that Citigroup has sufficient safeguards in place (as must be reviewed in connection with this BHC Act application, under the USA Patriot Act). For the record, and in order to trigger the requisite review in this proceeding, the Financial Times reported on November 29, 2001, that "U.S. investigators believe about half the $500,000 that the hijackers spent on the September 11 plot was sent by Mustafa Ahmad, who is today regarded by investigators as bin Laden's finance chief, via Dubai money exchanges through Citibank in New York and on to Florida." See also, Wall Street Journal of November 9, 2001: "About $110,000 in transfers from Dubai to two of the hijackers involved in the Sept. 11 attacks on New York and Washington moved from an exchange house in the U.A.E. via Citibank in New York to the hijackers' joint account at SunTrust."  See also, the (London) Independent of 11/20/01, which reported that Ramzi Muhammad Abdullah bin al-Shibh (who features prominently in the recently-released indictment of Zacarias Moussaoui) "transferred $2,200 (pounds 1,500) from his account at Citibank in Hamburg to a Florida bank on 15 August." (Interestingly, this transfer from a Citibank branch does not figure in the Moussaoui indictment). The FRB must inquire into the sufficiency of anti-money laundering controls at Citigroup, under the terms of the BHC Act and the USA Patriot Act, in this proceeding...

    Under the explicit "managerial resources" factor of the Bank Holding Company Act, and in light of the FRB's duties under the principles promulgated by the Basel Committee on Banking Supervision, the FRB must inquire into each of these managerial and compliance issues, as well as the predatory lending and CRA issues with which ICP began this Comment, before even considering allowing Citigroup to acquire Golden State and further expand, subjecting more people to Citigroup's practices.

     For the reasons set forth above, the FRB should schedule and hold a public hearing on these applications, and, on the current record, the Board should deny the applications.

       If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director
Inner City Press/Community on the Move
& Fair Finance Watch

    NOTE: This page will be updated.  For or with more information, contact us.

* * *

Citi- Sears

On August 4, 2003, Inner City Press / Community on the Move and its Fair Finance Watch (ICP) filed comments opposing Citigroup's applications to acquire  Sears, Roebuck & Company's financial services business.   Throughout 2003, ICP has been compiling evidence of continued predatory lending by Citigroup's CitiFinancial; ICP has submitted exhibits to the regulators in this regard.   ICP's comments analyze Citigroup's mortgage lending in 2002, data for which became available only on August 1, 2003.   The 2002 HMDA analysis is followed by evidence that Citigroup remains a predatory lender, that it is increasingly exporting the worst of its predatory practices, and its lax compliance practices, as evidenced by its only-recently-half-settled involvements with Enron and Dynegy, its still not sufficiently reformed self-serving investment advice, its lax anti-money laundering controls (most recently in Nigeria), its lack of human rights standards (the example ICP gives involve Rwanda and the Democratic Republic of the Congo), etc.. A summary of some of the points in the protest follow; see also, "Group Seeks to Scuttle Sears, Citibank Deal," by Kelly Quigley, Crain's Chicago Business, August 6, 2003;  "Group Seeks to Scuttle Sears, Citibank Deal," Washington Times (UPI), August 6, 2003; "Sears, Citigroup merger challenged," Chicago Daily Herald August 5, 2003, Pg. 3; "Group Opposes Sears, Citigroup Credit Card Deal," Consumer Financial Services Law Report, August 28, 2003. 

Update of October 27, 2003: Inner City Press, having in early August commented on and against Citigroup's application to the Office of the Comptroller of the Currency to acquire Sears' credit cards and financial services business, received by mail the OCC's approval order. On the issues raised, the OCC's order -- actually, it's just a nine-page letter from the OCC's Licensing Manager for large or "multi-national" banks -- is woefully inadequate. Citigroup, which only recently settled charges of predatory lending, has stated it will market subprime loans to Sears' customer base. But the OCC argues that "many of the concerns raised dealt with Citigroup entities that are not parties to this transaction, are non-bank subsidiaries of Citigroup, or are institutions regulated by other federal agencies... The OCC has no regulatory or supervisory authority over any of the Citigroup entities mentioned by the commenters that conduct subprime lending, such as CitiFinancial Credit Company, because none of these entities are national bank or subsidiaries of national banks."

   Pshaw. Citigroup has said it will market CitiFinancial's products to the customers of Sears National Bank -- so the argument that CitiFinancial is not "a party to the transaction" is a weak legalism. And while the OCC may not be the examiner of CitiFinancial, if the effect of a Bank Merger Act proposal before the OCC is to expose customers of the target national bank to products from a company widely alleged -- including by government authorities -- to be predatory, the OCC must act on this.

  The OCC's staged disempowerment is particularly strange given the Comptroller's current campaign of preempting state anti-predatory lending laws. To be seeking to occupy the field of regulation, and then refusing to regulate, is a contradiction which is harming consumers...  Until next time, for or with more information, contact us.

Update of October 20, 2003: last Thursday, October 16, Sears (not Citigroup) put out a press release saying that the OCC had approved the application. ICP immediately submitted a request, under FOIA and otherwise, to the OCC for a copy of the approval documents. Nothing, however, has yet been received. When it is, it will be reported and analyzed here. How very transparent...

Update of September 8, 2003: While the OCC has apparently still not asked Citigroup the type of questions other regulators routinely ask applicants, ICP submitted the following to the Illinois Insurance Department on September 8:

"Under cover letter dated August 25, 2003, ICP received a copy of a Form A application by Citigroup's counsel, dated August 4, 2003. It refers to an exemption request dated July 27, 2003 -- a copy of which ICP still does not have, despite its requests since August 4. A copy of the exemption request should be provided forthwith to ICP; it should not be ruled on, other than denied, until that happens, and ICP can be heard.

"Under cover letter dated August 28, 2003, ICP received certain exhibits to Citigroup's Form A. However, the affidavits provided are not of Citigroup's board of directors. In fact, the August 4 Form A states, under required Item 3, that "affidavits in the form designated in 50 Ill. Adm. Code 913 Illustration 1 will be filed as soon as they are available." Apparently, as of August 28 they had not been filed. Given the corporate scandals surrounding Citigroup and its board of directors (Enron, WorldCom, conflicted analyst advice, etc.), the requirements of biographical affidavits, etc., should NOT be waived. ICP will await receipt of the July 27 exemption request (which should be denied), and of the required biographical affidavits from Citigroup's directors."

    CitiFinancial's predatory lending was on the CBS Evening News on September 5.... 

Update of September 1, 2003: on August 29 we received Citigroup's much-delayed response to our comments of August 4, on Citi-Sears. Citi's response tries to argue that the predatory lending issues raised are "not related to the parties or the transaction." Meanwhile Citi reiterates that it would expand marketing of "insurance as well as consumer finance products and services" to Sears' customers.

   Citi also states that it "does not provide public comments on matters that are the subject of litigation." Fine, then -- the OCC should simply deny Citi's applications until Citi is prepared to respond on relevant matters timely raised. Here's another, pre-litigation:

Subj: CitiMortgage has lost my wire

Date: 8/26/03 2:28:15 PM Eastern Daylight Time

From: [Name withheld in this format]

To: feedback [at] fairfinancewatch.org

I found your web site and am in horror of what CitiMortgage has been up to. On 8-5-03, Equity Title Company wired a loan payoff to CitiMortgage. CitiMortgage has still not applied the $ to my account, which is 21 days later. I have faxed them the copy of the wire confirmation, I've sent faxes, I've called numerous times, and no one will return my call or help me. I recently had applied for a home equity line after this loan was supposedly "paid off" and will not get this loan now. I have never been through an experience such as this and I'm beyond frustration. How can a company like this stay in business?!

   It's called... campaign contributions! As to the business that Citi does through third parties, subprime and otherwise, Citi responds that it "review[s] resumes of principles of all third-party originators" (Resp. at 11). Rather than explain its basis for continuing to do business with the questionable subprime lenders ICP has named, Citi responds with generalities such as this. Somehow we doubt that a resume or c.v. would be the best source for potentially adverse information... For with more information, contact us.

Update of August 25, 2003: Citigroup and Sears do not even agree on what loans would be sold, or what the premium would be (see American Banker of August 21, at 5) -- and the Office of the Comptroller of the Currency either doesn't have, or hasn't released, this information. Nor has Citigroup submitted any substantive response yet. So ICP has requested an extension of the comment period from the OCC...

Update of August 18, 2003: In this Citigroup - Sears proceeding, ICP has just submitted to the OCC and the Illinois Insurance Department documentation of a sample CitiFinancial loan. The customer, who has authorized ICP to name her, is Betty Arnold. She and her husband Benny got a $140,013.60 loan from CitiFinancial on their marital residence. The CitiFinancial loan officer was Jack Lay -- he insisted on filling out the applications, including the insurance forms, himself. While the Arnolds disclosed that Benny had a heart condition, Jack Lay check off the "no prior condition" box on the insurance forms.

  We have previously demonstrated, including in the exhibits to our first timely comment in this proceeding, that Citigroup pays CitiFinancial employees bonuses based on how much credit insurance they sell. This creates an incentive not only to hard-sell the insurance, but also to mis-fill out forms, as took place in this case.

  Benny Arnold subsequently died of an aneurysm -- but Citigroup's American Health & Life Insurance Company refused to pay on the policy, despite the fact that the Arnolds had fully disclosed all prior conditions in the course of applying for and obtaining the loan and insurance.

  Citigroup has had the opportunity to correct this outrage -- ICP has in its possession internal CitiFinancial documents reflecting their awareness of this loan and these issues, and that documentation has been made available to Citigroup and its outside counsel -- and still, the widow Mrs. Arnold faces foreclosure. All of these fact are attested to in the attachments we have now submitted to the OCC and Illinois Insurance Department -- along with Mrs. Arnold's phone numbers. So we'll see...

Update of August 11, 2003: while we await Citigroup's response, we've learned that Citi has been arguing to the Illinois Insurance Department that no application should be required, to acquire Sears Life Insurance Company, because insurance is "an insignificant part" -- the full language of the statute is "its insurance business either directly or through its affiliates is an insignificant portion of its total business." This seems strange, that the larger a conglomerate (and therefore the smaller a part its insurance business is), the less scrutiny would be given. We've requested all documents from the Illinois Insurance Department.  For or with more information, contact us.

PETITION TO DENY AND HEARING REQUEST BY INNER CITY PRESS / COMMUNITY ON THE MOVE AND THE FAIR FINANCE WATCH IN OPPOSITION TO THE APPLICATION OF CITIGROUP TO ACQUIRE SEARS, ROEBUCK & COMPANY'S FINANCIAL SERVICES BUSINESS

AUGUST 4, 2003

    On behalf of Inner City Press/Community on the Move and its members and affiliates, and of the Fair Finance Watch (collectively, "ICP"), this is a timely comment opposing and requesting hearings on the application of Citigroup, Inc. (along with its subsidiaries, including its national banks and the subprime lender CitiFinancial, "Citi") to acquire the financial services business of Sears, Roebuck & Company ("Sears").

    Citigroup, a conglomerate already extensively involved in questionable subprime (high interest rate) lending, here seeks to gain access to more than 23 million more consumers, to whom it would market its home equity lines and installment loans, regarding which Citigroup has a recent and still pending predatory lending settlement. Beyond the foreseeable anti-competitive impacts ("The deal will increase Citigroup's card portfolio to about $ 170 billion and solidify its market-leader position -- far ahead of No. 2 card issuer MBNA, which had a $ 107 billion portfolio at the end of last year," USA Today, July 16, 2003), as reflected in the just-released 2002 Home Mortgage Disclosure Act ("HMDA") data, Citigroup's normal interest rate lenders disproportionately deny and exclude Latinos and African Americans, while Citigroup steers these groups to its high-rate subprime units, including CitiFinancial. Since Citigroup chief operating officer, in announcing the deal, made much of Sears' "eighteen percent Latino customer base," (specifically, he said that "eighteen percent of the Sears customer base is Hispanic"), questions are raised about targeting protected classes with predatory financial products: questions that militate for public hearings, and for the denial of Citigroup's applications.

    That it is Citigroup's intention to market home equity loans to Sears' credit card customer is clear: see, for example, Securities Data Publishing's Asset Securitization Report of July 21, 2003, that Citigroup "hopes to cross-market various other consumer loan products, such as home equity loans to current Sears credit card holders." The American Banker of July 21, 2003, describes a broader range of Citigroup products to be pitched: "mortgages and home equity lines to installment loans." It was only in September 2002 that the Federal Trade Commission announced a proposed $240 million settlement with Citigroup, for predatory lending. The settlement, which numerous CitiFinancial customers have attacked as unfair and abusive -- waiving of all claims in exchange for $120 -- is currently on the appeal. In any event, beyond the settlement, attached hereto is evidence, including internal CitiFinancial documents provided to ICP by whistleblowers, showing continued predatory lending, insurance sales and other practices at Citigroup. Your agency has a duty to closely consider this evidence, including at the hearing ICP is timely requesting, before even considering allowing 25 million more consumers to be subjected to Citigroup's practices.

    Because the 2002 HMDA data has just been released - it became available through the FFIEC only on August 1 -- ICP begins this comment with a review of Citigroup ongoing disparities in lending, which also militate for the requested hearing (and for the denial of Citigroup's applications). The 2002 HMDA analysis will be followed by timely presentation that Citigroup remains a predatory lender, that it is increasingly exporting the worst of its predatory practices, and its lax compliance practices, as evidenced by its only-recently-half-settled involvements with Enron and Dynegy, its still not sufficiently reformed self-serving investment advice, its lax anti-money laundering controls (most recently in Nigeria), its lack of human rights standards (the example given involve Rwanda and the Democratic Republic of the Congo), etc., all militate for the requested hearing and for the denial of Citigroup's applications.

    The analysis below cumulates CitiMortgage and Citigroup's lead bank in the analyzed market, and calls the two together "Citibank;" Citibank's exclusion of African Americans and Latinos from normal-rate loans stands in contrast to the high-rate and predatory practices of CitiFinancial, described below, which are disproportionately targeted to African Americans and Latinos.

    In 2002 in the New York City Metropolitan Statistical Area ("MSA"), for conventional home purchase loans, Citibank (Citibank, N.A. and CitiMortgage together) denied loan applications from African Americans 4.67 times more frequently than applications from whites. Citibank denied Latinos 3.17 times more frequently than whites. This is much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 1.89 for African Americans, and 1.68 for Latinos.

   Citibank's higher-than-aggregate denial rate disparities are not explained by any greater-than-normal outreach with normal-priced credit to African Americans or Latinos. In 2002 in this MSA, Citibank made 3607 conventional home purchase loans to whites, only 390 to African Americans, and 458 to Latinos. For the record, the aggregate industry in this MSA in 2002 made 6567 such loans to African Americans, 6365 to Latinos, and 34,336 to whites. For these three groups, the aggregate made 13.87% of its loans to African Americans, and 13.47% to Latinos. For Citibank, the figures were much lower: 8.7% of loans to African Americans, and 10.3% to Latinos.

   For refinance loans in the NYC MSA in 2002, Citibank denied applications from African Americans 4.13 times more frequently than applications from whites. Citibank denied Latinos 2.73 times more frequently than whites. This is much worse than other lenders in this MSA: the comparable denial rate disparities for the industry as a whole in 2002 were 1.87 for African Americans, and 1.71 for Latinos. Exclusion is part-and-parcel with Citibank's notably higher denial rate disparities between whites, African Americans and Latinos: among these three groups, only 9.3% of Citibank's refinance loans were to African Americans (versus 17.42% for the aggregate); only 6.8% of Citibank's loans were to Latinos (versus 9.9% for the aggregate). Citibank is a redliner; as documented infra in this comment, CitiFinancial is a predatory lender.

   In 2002 in the Long Island MSA for conventional home purchase loans, Citibank (Citibank, N.A. and CitiMortgage together) denied loan applications from African Americans 3.75 times more frequently than applications from whites. Citibank denied Latinos 3.38 times more frequently than whites. This is much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 2.09 for African Americans, and 1.71 for Latinos.

   Citibank's higher-than-aggregate denial rate disparities are not explained by any greater-than-normal outreach with normal-priced credit, particularly to Latinos. In 2002 in this MSA, Citibank made 1277 conventional home purchase loans to whites, only 88 to African Americans, and only 77 to Latinos. For the record, the aggregate industry in this MSA in 2002 made 1665 such loans to African Americans, 2682 to Latinos, and 24,263 to whites. For these three groups, the aggregate made 5.8% of its loans to African Americans, and 9.4% to Latinos. For Citibank, the figure for African Americans was comparable (6.1% of Citibank's loans), but much lower-than-aggregate to Latinos) ( 5.2% of Citibank's loans). Citibank's exclusion of Latinos in this MSA (and others listed below) is striking.

   For refinance loans in this MSA in 2002, Citibank denied applications from African Americans 3.19 times more frequently than applications from whites. Citibank denied Latinos 2.90 times more frequently than whites. This is much worse than other lenders in this MSA: the comparable denial rate disparities for the industry as a whole in 2002 were 1.83 for African Americans, and 1.59 for Latinos.

  In 2002 in the Los Angeles MSA for conventional home purchase loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications from African Americans 4.43 times more frequently than applications from whites. Citibank denied Latinos 5.67 times more frequently than whites. This is much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 1.95 for African Americans, and 1.62 for Latinos.

   Citibank's higher-than-aggregate denial rate disparities are not explained by any greater-than-normal outreach with normal-priced credit to African Americans or Latinos. In 2002 in this MSA, Citibank made 357 conventional home purchase loans to whites, only 21 to African Americans, and only 122 to Latinos. For the record, the aggregate industry in this MSA in 2002 made 6619 such loans to African Americans, 28,391 to Latinos, and 54,916 to whites. For these three groups, the aggregate made 7.4% of its loans to African Americans, and 31.6% to Latinos. For Citibank, the figures were notably lower: 4.2% of loans to African Americans, and 24.4% to Latinos.

  For refinance loans in this MSA in 2002, Citibank denied applications from African Americans 2.92 times more frequently than applications from whites. Citibank denied Latinos 3.16 times more frequently than whites. This is much worse than other lenders in this MSA: the comparable denial rate disparities for the industry as a whole in 2002 were 2.18 for African Americans, and 1.81 for Latinos. Exclusion is part-and-parcel with Citibank's notably higher denial rate disparities between whites, African Americans and Latinos: among these three groups, only 6.6% of Citibank's refinance loans were to African Americans (versus 7.0% for the aggregate); only 23.2% of Citibank's loans were to Latinos (versus 27.9% for the aggregate). Citibank is worse than the aggregate in every way.

   In 2002 in the Oakland MSA for conventional home purchase loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications from African Americans a whopping 12.62 times more frequently than applications from whites. Citibank denied Latinos 7.5 times more frequently than whites. This is much, much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 2.66 for African Americans, and 1.87 for Latinos.

   Citibank's much higher-than-aggregate denial rate disparities are certainly not explained by any greater-than-normal outreach with normal-priced credit to African Americans or Latinos. For these three groups, the aggregate made 8.1% of its loans to African Americans, and 20.9% to Latinos. For Citibank, the figures were both lower: 4.8% of loans to African Americans, and 11.6% to Latinos.

   For refinance loans in this MSA in 2002, Citibank denied applications from African Americans 5.34 times more frequently than applications from whites. Citibank denied Latinos 2.03 times more frequently than whites. This is much worse than other lenders in this MSA: the comparable denial rate disparities for the industry as a whole in 2002 were 2.59 for African Americans, and 1.90 for Latinos. Exclusion is again part-and-parcel with Citibank's notably higher denial rate disparities between whites, African Americans and Latinos: among these three groups, only 6.6% of Citibank's refinance loans were to African Americans (versus 8.3% for the aggregate); only 11.3% of Citibank's loans were to Latinos (versus 12.2% for the aggregate).

   In 2002 in the Chicago MSA for conventional home purchase loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications from African Americans 4.23 times more frequently than applications from whites. Citibank denied Latinos 3.74 times more frequently than whites. This is worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 3.83 for African Americans, and 2.62 for Latinos.

   For refinance loans in this MSA in 2002, Citibank denied applications from African Americans 4.81 times more frequently than applications from whites. Citibank denied Latinos 3.00 times more frequently than whites. This is much worse than other lenders in this MSA: the comparable denial rate disparities for the industry as a whole in 2002 were 3.43 for African Americans, and 2.47 for Latinos. Citibank is a redliner; as documented infra in this comment, CitiFinancial is a predatory lender.

   In 2002 in the Washington DC MSA for conventional home purchase loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications from African Americans 5.67 times more frequently than applications from whites. Citibank denied Latinos 3.03 times more frequently than whites. This is much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 3.04 for African Americans, and 2.38 for Latinos.

  For refinance loans in this MSA in 2002, Citibank denied applications from African Americans 4.38 times more frequently than applications from whites. This is much worse than other lenders in this MSA: the comparable denial rate disparities for the industry as a whole in 2002 were 3.06 for African Americans.

  In 2002 in the Newark MSA for conventional home purchase loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications from African Americans a whopping 30.8 times more frequently than applications from whites. Citibank denied Latinos 15.2 times more frequently than whites. This is much, much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 3.43 for African Americans, and 2.33 for Latinos.

   Citibank's higher-than-aggregate denial rate disparities are certainly not explained by any greater-than-normal outreach with normal-priced credit to African Americans or Latinos. For these three groups, the aggregate made 10.0% of its loans to African Americans, and 10.3% to Latinos. For Citibank, the figures were 4.8% of loans to African Americans, and 4.8% to Latinos.

  For refinance loans in this MSA in 2002, Citibank denied applications from African Americans 5.81 times more frequently than applications from whites. Citibank denied Latinos 5.56 times more frequently than whites. This is much worse than other lenders in this MSA: the comparable denial rate disparities for the industry as a whole in 2002 were 2.61 for African Americans, and 2.27 for Latinos. Exclusion is part-and-parcel with Citibank's notably higher denial rate disparities between whites, African Americans and Latinos: among these three groups, only 7.5% of Citibank's refinance loans were to African Americans (versus 9.6% for the aggregate); only 5.1% of Citibank's loans were to Latinos (versus 7.3% for the aggregate). Citibank is a redliner; as documented infra in this comment, CitiFinancial is a predatory lender.

   Some other MSAs where Citigroup has direct CRA duties: in the Rochester NY MSA in 2002 for conventional home purchase loans, Citibank -- Citibank (New York State) and CitiMortgage together -- denied loan applications from African Americans 4.44 times more frequently than applications from whites. Citigroup denied Latinos 5.56 times more frequently than whites. This is much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 2.60 for African Americans, and 1.99 for Latinos.

   In the Las Vegas MSA in 2002 for conventional home purchase loans, Citibank -- Citibank FSB and CitiMortgage together -- denied loan applications from African Americans 3.57 times more frequently than applications from whites. Citibank denied Latinos 1.98 times more frequently than whites. This is worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 1.99 for African Americans, and 1.87 for Latinos. In the Baltimore MSA, Citibank (Citibank FSB and CitiMortgage together) denied loan applications from African Americans 3.80 times more frequently than applications from whites, higher than the aggregate's disparity (3.27). In the Bridgeport, Connecticut MSA for refinance loans, Citibank (Citibank FSB and CitiMortgage together) denied loan applications from African Americans 5.23 times more frequently than applications from whites. Citibank denied Latinos 6.28 times more frequently than whites. This is much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 3.05 for African Americans, and 2.59 for Latinos.

   In 2002 in the Philadelphia MSA, CitiMortgage denied the conventional home purchase loan applications from African Americans 4.55 times more frequently than applications from whites, higher than the aggregate's disparity (3.11). In 2002 in the Raleigh-Durham NC MSA, CitiMortgage denied the refinance loan applications from African Americans 4.88 times more frequently than applications from whites, higher than the aggregate's disparity (3.29). And in 2002 in the Charlotte NC MSA, CitiMortgage denied the refinance loan applications from African Americans 5.56 times more frequently than applications from whites, higher than the aggregate's disparity (2.36).

  In 2002 in the Phoenix MSA -- particularly relevant as to Sears National Bank -- for conventional home purchase loans, CitiMortgage denied loan applications from African Americans 4.27 times more frequently than applications from whites. This is much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2002 were 2.0 for African Americans.

   For refinance loans in this MSA in 2002, CitiMortgage denied applications from African Americans 4.71 times more frequently than applications from whites. CitiMortgage denied Latinos 3.21 times more frequently than whites. This is much worse than other lenders in this MSA: the comparable denial rate disparities for the industry as a whole in 2002 were 2.14 for African Americans, and 2.03 for Latinos. Exclusion is again part-and-parcel with Citibank's notably higher denial rate disparities between whites, African Americans and Latinos: among these three groups, only 1.7% of CitiMortgage's refinance loans were to African Americans (versus 1.9% for the aggregate); worse, only 2.6% of CitiMortgage's loans were to Latinos (versus 11.0% for the aggregate).

   ICP's analysis of Citigroup's 2002 HMDA-reported lending continues (including below) -- but from the CRA-relevant MSAs analyzed above, it should be clear that an evidentiary hearing is necessary.

   Citibank is also disparate in its small business lending. ICP has analyzed the just-released 2002 CRA data. In New York City, Citigroup's headquarters, Citibank disproportionately excludes from its small business lending the county with the highest percentage of African Americans and Latinos: Bronx County. Considering loans to businesses with gross annual revenue under $1 million ("small business loans"), Citibank, N.A. made 14 such loans in Manhattan for every loans it made in The Bronx -- a much worse record that the aggregate, which made seven such loans in Manhattan for every loan in The Bronx. Here is a table:

2002 Loans to Businesses with Revenues under $1 Million (Amt in $1000s)


         Citibank    Citibank      % of Citi             Aggreg      Aggreg       % Agg
           Loans       Amount     # of Loans            Loans      Amount       # loans

Bronx       41       $1441            3.86%              3778       $113,019    6.65%

Manh      584     $21038            55.00%            26587      $824,889    46.6%

Bklyn      186        $6900             17.51%           11846      $299,682     20.9%

Qns        216         $8110             20.34%             12443    $364,476       21.9%

Stat Is.     35          $1160               3.30%               2129      $59,559         3.75%

Total      1062       $38655              100%             56783      $1,661,625      100%

    As a fair lending matter, The Bronx is the most predominantly African American and Latino county in New York City (and New York State); it is the only county where Citibank, N.A. substantial differs from the aggregate's lending pattern, in that Citibank disproportionately excludes The Bronx. As a direct Community Reinvestment Act matter, The Bronx is also the lowest income county in New York.

   In a recent search of the OCC's Web site, ICP could find no CRA performance evaluation for Citibank USA, N.A., and only a five year old performance evaluation for Sears National Bank. That exam is out-dated; also, note that the text of that exam, referencing but not following up on a Sears MasterCard program in part of 1997, makes clear that the MasterCard program that Sears began in 2000 changes the performance context -- a new exam is needed, while this proceeding is pending.

Citigroup Remains a Predatory Lender

   Particularly in light of the OCC's (and the Comptroller's) July 31, 2003, statements that the OCC is committed to acting against predatory lending, ICP hereby timely for the record contends that Citigroup is a predatory lender, and remains one after its $240 million settlement with the FTC (without any binding injunctive relief) and unilateral non-binding reforms (which are entirely limited to real estate loans, and are limited to the United States, see infra). ICP has been receiving troubling documentation of CitiFinancial's practices, from inside the company. Some is attached hereto as exhibits. We received the following letter, from an employee:

As a long-time employee of CitiFinancial, formerly Commercial Credit, I can personally testify that while CitiFinancial appears to be [getting] in compliance with the Federal Trade Commission, it couldn't be further from the truth. CitiFinancial's claims that the bad rap came from Associates [First Capital Corp.] is a bunch of BS. CitiFinancial continues to target subprime borrowers charging ridiculous rates, as high was 34% (even on "Excellent" risks). They are still flipping or RBO-ing loans... Home Office mails out 'pre-approved' loan vouchers that aren't really pre-approved and bank drafts at lower APRs than what we offer in a branch and then proceed to solicit these unknowing souls and all they did was deposit a check in their bank account! Now to the biggie, retail sales accounts. Once that account is in a branch, the customer better move, change their phone number to non-published and possibly change their name because we are going to call them, mail them, call them again etc. etc. etc.. Flipping a sales account to a personal or equity counts big on ROCOpoly (if you get all of the Quik Plan points, a gain, minimum $ per K and so on)...

    In the above, "RBO" means "refinance balance only," that is, flipping. The above-quoted whistleblower provided ICP with a copy of a CitiFinancial memo to branch managers, from 2003 (that is, after the FTC settlement announced), stating that

You may or may not have noticed that your personal loan credit authority has been reduced to $5,000... Any personal loan where the credit approval exceeds your authority you are to refer to me for approval. The purpose is to stimulate Equity Plus business. Do not send an application where the customer is a homeowner to home office credit for approval. I want to review those applications myself. Make sure your staff understands. If the customer qualifies for an equity plus loan I should see notes reflecting their conversation on the sale of that product. If I do not see, the loan will not be approved until the employee has made a sales presentation to the customer for a larger loan paying off debt and building the loan to an equity plus basis... I expect and will inspect for compliance...

    This means that CitiFinancial blatantly seeks to get a lien against an applicant's home, even if the applicant states that he or she only wants a smaller, unsecured loan.  Also attached are exhibits are a number of CitiFinancial training documents, showing inter alia the ROCOpoly bonuses paid for (forced-placed) insurance sales, scripts to use to convince or deceive customers into accepting high-cost credit insurance (including a script of what to say when the customer says "no"); and a list of "Ideas for Improving Sales" making clear that the purpose of soliciting "collateral lists" for non-real estate loans is to sell insurance: an ongoing predatory practice at CitiFinancial.

    As noted, Citigroup's predatory lending is not limited to real estate loans (although its $240 million FTC settlement, and its unilateral, unenforceable "reform" announcements are). Here is a sample complain, made to the North Carolina Attorney General's office after the FTC-Citigroup announcement (and obtained by ICP under the freedom of information laws):

I entered into a contract with Furniture Warehouse... CitiFinancial is the financier for Furniture Warehouse. Under the section entitled "Special Financing," it states that if the contract is paid within 360 days of the contract, there will be no finance charge. It was represented to me by Furniture Warehouse that the agreement involved no interest for one year. [Within a year of the purchase, I made the lump sum payment.] I was then told that the payoff exceeded $500.00. This is when the dispute began... I contacted Ed Mayhew, Manager, CitiFinancial, by mail... At some point, Mayhew called my home, and informed my husband that he was going to sue me. He filed a small claims suit... I appeared at small claims court at the appropriate time, fully prepared to defend my case. Neither Mayhew nor any representative of his office or company had the courtesy to appear... Last year, my credit score was a respectable 719. Now, I am attempting to get a loan, and my financier tells me my score has dropped to 586... As a result the loan has been denied.

Here are some sample complaints consumers have made to the Missouri Attorney General's Office:

Consumer says that after six years of payments, she owes more money than the original purchase price and that she has no equity in the home. Company [CitiFinancial] has threatened foreclosure."

"Consumer purchased a TV from Tex and financed through Company [CitiFinancial]. Total bill came to $1252.00 and she stated that she made six or seven payments and she should only owe $700, Company is stating that she owes $1,000."
"Company [CitiFinancial] has reported consumer late even though consumer has provided copies of cancelled checks as proof of payment."
"Company [CitiFinancial] is calling the consumer and harassing them about their account, sometimes five times a month. Checks enclosed show that consumer has paid on time." "Consumer has two loans totaling $54,000 on a home she says is worth $40,500. Consumer wants to make sure this doesn’t happen to others."

Some other complaints ICP has received, in the last month (including last week) --

Subj: CitiMortgage Date: 7/29/03 From: [name withheld] To: CitiWatch [at] innercitypress.org

...We have literally tried for 7 months to over come a plethora of problems in dealing with Citicorp (Mortgage Division). It started first dealing with a subsidiary of Primary Residential Mortgage Company. We were offered a FHA stream-line Mortgage refinance in October of 2002... We closed (the 1st time) in late December. Took to the closing company the payments needed to satisfy the arrangements. Thought at this time all was completed. Several things happened at this moment, number one… they didn’t pay off the existing Mortgage company and I started getting Late notices, and letters stating pending actions if we didn’t start paying on the mortgage again. This took a while to resolve, but in the end Primary did take care of that issue and paid the late fees to avoid hurting our credit. Then we were notified by Primary that the first closing was void due to acute errors in the paperwork and we could ether stop the process or we would have to again go through the refinance process again... When we showed up to sign my wife noticed the payments went up approximately 100.00. We also noticed a few other issues, and called our Primary representative. We were told that the first company had errored on our tax and insurance escrow and that is why we had to re do it (first we had heard about this). We were not going to sign, but were informed that again we would have to start this process all over if we didn’t. We were told any errors could be handled, to go ahead and sign… they will take care of it later.

In the mean time our loan was sold to CitiMortgage. On our first notice from Citi we noticed the rate was wrong, we called Primary and they took care of that. Then we got another statement from Citi and it had the right amount on it. We had thought we could forget about the mortgage issues we had just overcame. Little did we know, it was really just starting to go bad.

Several weeks went by and we received a notice from Citi that we were delinquent on our payment. After checking we found out that Citi had indeed opened 2 mortgage accounts in our name and on the same house. We tried to explain to Citi what had happened, but they couldn’t understand or see what had happened. Our Primary representative was off on maternity leave and the people in that office also were clueless. We started getting threatening letters from Citi about our delinquent payments on our house. Now mind you we were making the payment on the "corrected" loan. It took about 6 months to get this at least somewhat taken care of. Citi even went as far as turning us over to a type of collection agency. Citi also notified us that they would retract any ill credit reports in fact said they didn’t even report on that loan.

Unfortunately I was denied credit recently due to the fact that Citi did report not only the delinquent payments, but also showed 2 home loans for over 100,000 a piece which placed our debt to earnings ratio way out of sorts. We were going to try and refinance at even a lower rate but were unable to due to the existing loan(s) being in such disarray.

They didn’t pay our taxes with Spokane County and we were sent notice of default. Our insurance wasn’t paid on time and we had to change Insurance companies due to the rate bracket they put us in due to our Citicorp-created credit woes.

So where do we stand presently, well my wife and I have logged dozens upon dozens of hours trying to get this straightened out (and it still isn’t). We have missed work trying to resolve this. Our credit is still in turmoil at this point. They still have not refunded the escrow money (they say it doesn’t exist now). We were promised the escrow overage would be refunded, now they are billing us saying we are short escrow money. They won’t return our calls. When we do get a hold of them, no one knows anything, they won’t let us talk to a supervisor when we ask... This has gone on way too long, it’s been 7 months of pure hell. They don't listen, they don't care.

    And

Date: 7/22/03 2:59:54 PM Eastern Daylight Time From: [ ] To: CitiWatch [at] FairFinanceWatch.org

My husband and I had a mortgage for many years with First Nationwide Mortgage which was merged into (bought by) CitiMortgage, Inc. The transition took place last March 2003. What has transpired since that time has become a worse nightmare as each day goes by. To make it short, they have and are violating RESPA, Fair Credit Reporting Act, Fair Credit Collections Act and numerous other federal statutes. Even though our case is being 'handled' by the President of CitiMortgage's office ("presidential investigation", they like to call it), we have received no return phone calls, no written responses to letters, including our "qualified written request" since May 15, 2003. (Today is July 22, 2003.) Our once perfect payment record is now a shambles despite continuing to make on time payments. They have made our payment and credit records a mess and refuse to communicate or to remedy their illegal actions. We cannot even refinance with another lender due to this. We are not interested in class action suits that result in paltry slaps on the wrist of Citigroup and nothing to remedy the damage that is being done to consumers (e.g., Morales, et al). My venture into looking for attorneys is done with trepidation. My first question to a law firm is if they have ever or are presently representing Citigroup, CitiFinancial, CitiMortgage, and/or any of their myriad entities. You wouldn't believe how many firms do not return my calls. Is everyone afraid of these guys? I've been reading with great interest your web site.

   And

Date: 7/11/03 7:33:42 PM Eastern Daylight Time From: [Name withheld pursuant to request - see below]To: CitiWatch [at] innercitypress.org

I found your site as I was searching for any suits brought against CitiMortgage for fraudulent PMI premiums. In late February of this year, my husband and I purchased a home. We chose Citigroup Mortgage Company to handle our financing because at the time I truly believed they were an honest company that was looking out for families like ours who wanted a home of their own and out of debt. I was even considering becoming an agent for them through Primerica and help other families become debt free. I even went as far as getting my insurance license. When we received the "Pre-Approved" paperwork that we signed and sent back to them, it estimated our mortgage payment at about $850.00 a month. This included the PMI, which was estimated at $77.00. I understand the need for the PMI as my husband and I were purchasing the property with no money down. The property we purchased consist of 4 lots in all and is zoned for Commercial. There is 40x45 commercial building that we purchased with the house. The appraiser, which Citigroup provided, estimated this property at exactly the amount we were purchasing the property for. I was not concerned about this at the time; I was actually happy. Now that I see things looking back, I can see why they would not want it to appraise for more. It puzzles me that a property of this size with both buildings appraised at $16,000 less than the original asking price. It took 3 WEEKS for the appraiser to bring back comps to the company that the underwriter would accept. I was told by the loan processor that the original comps were coming in too low!!! I can not understand this. All in all, I was repeatedly reassured by the representatives of the mortgage company that everything would be fine. Once we arrived at the closing, which was pushed back by 3 weeks due to various delays, we found out that our monthly payment jumped $200.00 from the originally estimated amount!!!! We were NEVER advised through the two months that we worked with this company of this change. If we had, we would have clearly opted to not purchasing the house! In fact, with the closing date being 3 weeks overdue, we had already signed the offer, and not knowing this information until the time of closing, my husband and I found ourselves backed into a corner. We were made to believe by the realtor that if we did back out at the closing table that there may be some legal ramifications from the seller! Needless to say, my husband and I did sign and now find ourselves with a mortgage payment that we clearly can not afford. It turns out the reason for the tremendous increase in payment was due to the amount of the PMI insurance jumping from the $77.00 originally estimated to $271.00!!!! The mortgage company states that the original estimate on the "pre-approval" paperwork did not take into consideration our credit criteria. Now, I ask, how can you "pre-approve" someone for a $78,000 loan without first considering their credit history? I have since researched and now realize that this insurance is based on the loan to value ratio, the type of loan, and the type of coverage required by the lender. It has nothing to do with our income or credit rating. In addition, PMI premiums should typically cost between 1/2% to 1% of the loan. In our case that would be $780.00 a year at the most. We are paying $3,252.00 a year by my calculations! Over the length of a 30 yr loan, they could potentially earn $97,560.00! That is more than our original loan, not to mention the 8.125% interest rate! Citigroup excused themselves of doing any wrong by stating that they have no control over the cost of the PMI because it is set by the insurance company. That is very interesting, seeing how Citigroup is the parent company of Travelers Insurance! It would not surprise me if Traveler's is, in fact, the insurance agency handling the PMI! In addition, I believe the appraisal was intentionally brought in at the purchase amount in order to force the need for PMI? I find it hard to believe that our property is not valued at at least 20% more than what we purchased it for. In the past few months since our purchase, I have seen quite a few properties that were of small size and on smaller lots sell for more than we purchased our home for. The sellers were happy to sell it for what they could get because it was part of an estate and they were about to lose the property for back taxes due. I have contact my State Legislator and his office has been very expeditious in investigating the matter. Unfortunately, this may not help us and the financial strain it has caused, but I hope that it prevents other families from being taken advantage of by Citigroup. They are truly a wolf in sheep's clothing! I encourage your readers to contact their state officials and take any opportunity they can to publicize the underhanded practices of this company. I request that you keep this anonymous, as the possibility of taking legal action against Citigroup is still being investigated.

   And:

Date: 6/16/03 4:38:08 PM Eastern Daylight Time From: [Name withheld]To: CitiWatch [at] innercitypress.org...

Our mortgage was with Associates and was sold to CitiFinancial. Since then I have become terminally ill and of course my income dropped dramatically, we contacted CitiFinancial to make them aware of the problem I asked to have the house refinanced to get a lower rate and they refused when the mortgage got behind they promised a deferral on the payments and after much paperwork they told us everything was approved and we were ok, then they wrote us approximately 4 to 6 months later saying we were behind again and that the deferral didn't go through, so we tried a deferral again with the same results a few months later, this same cycle has taken place 4 times since 1999 culminating in a phone call today 6/16/2003 notifying us that we are 128 days behind ( by our records we are only approximately 70 days behind ), and because of this they are starting foreclosure proceedings, we tried to refinance the house with another lender in 2000 but CitiFinancial refused to give the other lender a pay-off amount so they said they couldn't help us, we have made repeated attempts to rectify the situation* * *[Another message from last week]...I am in Ohio and am having a problem with Citi bank to the fact that I think a class action suit may be necessary. I liked your web site information and the information provided was invaluable to me. Let me explain. We have a Key bank card that is held by Citibank. We have always paid on time, paid more and have a great rating among any one we have ever worked with. Our car lease is paid 3-4 months in advance, our house payments are paid two months in advance. We don’t have multiple credit cards and only have this card and one other. That’s it. We received a note in the mail stating that Citi Bank was raising their rate to 18% citing excessive debt. BUT!! Our other credit card company has kept us at 7 % and we have a 0 balance on the other card as well as the Citi bank card as of last week. We don’t have any other debt. We are in the process of obtaining the credit reports. I have a sincere feeling that this is a ploy by Citibank to raise the rates. Even the person at Citibank in the executive offices said that I was an excellent customer and he did not understand it either. He offered to keep me at the 7 % but what about the other people consumers that are faced with this same situation??? I called the bank here in Ohio and they gave me a rude snot at Citibank that was verbally threatening that he would go ahead and take my account and close it. Well I will close it on my own... Your information gave me the inside track that] Citibank that has become this "monster in the industry" just thinks they can walk over anyone at any time with no regard for anyone...

     Citigroup's application mentions Primerica, ironically under the rubric of the Community Reinvestment Act. ICP has obtained -- and your agency should request, review and act on -- numerous complaints that have been filed with the Federal Trade Commission against Primerica. Here also, for the record, is a complaint directed to ICP earlier this month:

Date: 7/28/03 9:15:40 AM From [name withheld] To: CitiWatch [at] innecitypress.org

I had a run in with Primerica Financial Services. The insurance agent called himself a financial analyst and showed us mutual funds and some stock. We thought we were talking to a financial planner and this man turned out to be nothing but an insurance agent. One reason why we trusted him so much was that he was referred to us by a Pastor of a church that we used to attend.

We realize that we needed to read the contact, and we did go over it, but we felt that he was being honest with us so that we would be able to use him as our financial advisor. Come to find out he mislead on 3 items:

He did not reveal to us that he was getting commission, we asked him how do you make money? He said when you do. Not true, he did get a commission. Mislead on the cost of the account; mislead as to how much we could remove from the account when it was time to diversify the funds. As of now we are still in a 3% fixed account. Thank God we did not annuitize with this man. When we first met him, he did not say the word annuity. So we thought we were working with a financial planner someone who would help us. He did not call us like he said he would to help us. This account is very unsuitable for us because we are retired now and under the 72T rule and we need income now. I just do not understand how this man could be so dishonest with us, because he was referred to my by my old Pastor.

We realize that we rolled our 401K over to Primerica and Travelers but is there any way that we can get out without paying a penalty? ... He did introduce himself as a financial analyst....

    Particularly because Citigroup has explicitly referenced -- and sought CRA credit for - Primerica in its application, your agency has a duty to inquire into and act on these and other Primerica matters.

    Citigroup is also deeply involved in questionable subprime lending through its investment banking operation. For example, Salomon Brothers Realty Corp. has provided warehouse lines of credit of $775 million to subprime lender New Century Mortgage Corporation ("New Century"), requiring New Century either to securitize $1 billion of loans through Salomon Smith Barney as sole underwriter, or, in the alternative, to sell $1 billion in loans to Salomon Brothers Mortgage Securities VII for their own securitization. As simply another example, Salomon Smith Barney has been the underwriter for the subprime mortgage backed securities issuances of Centex Home Equity. What standards do SSB and Citigroup have for working with subprime lenders? Apparently none. Citigroup and SSB pulled out the stops in lobbying against a New York City ordinance that would have required them to certify they were not involved in predatory lending (see, e.g., Crain's New York Business of March 2, 2003); Citigroup has previously sought "confidential treatment" for even the names of the subprime lenders with which it does business. The OCC should obtain and release this list, and hold the requested hearings.

Citigroup Is Exporting the Worst of its Predatory Practices

  According to Citigroup's SEC filings, in 2002 Citigroup's consumer finance operations in North America had a net interest margin, of 8.47 per cent, while globally, outside of North America, its net interest margin on consumer finance was an astounding 21.14 per cent. ICP contends that Citigroup is a predatory lender globally -- worse, in many ways, outside of the U.S. that within. For the record:

   Citigroup and its predecessors were engaged in controversial subprime lending well before the acquisition of Associates in 2000. The upper echelon of management at Citigroup -- Sandy Weill, new CEO Charles Prince, new COO Bob Willumstad, et al. -- were all active with the Baltimore-based subprime lender Commercial Credit, which was challenged for predatory lending in 1997 when it applied to acquire additional subprime business from Bank of America, and for a federal savings bank charter. See, e.g., "Travelers Unit's Loan Record Hit," National Underwriter, June 23, 1997; "Calling Travelers 'Predatory,' Group Hits Deal with B of A," American Banker, June 13, 1997, Pg. 3.

   After the 1998 merger with Citicorp, Commercial Credit was renamed CitiFinancial; by early 2001, it was reported that "Citigroup, the world's largest financial services provider, began its Indian operations with the launch of CitiFinancial Retail Services India Limited. To begin with CitiFinancial will offer easy financing schemes, at retail outlets for the purchase of consumer durable, PC and two wheelers" (See, India Business Insight. "Citigroup Unveils Easy Buy Scheme," January 29, 2001).

   Soon after buying Banamex, Citigroup formed what it called a "Consumer Products Unit For Emerging Markets," saying that "the new unit would accelerate the expansion of non-banking consumer financial services into the emerging markets" (Citigroup press release on Business Wire, May 29, 2002). This press release indicated how and where CitiFinancial was going, by contrasting that "Citibank has consumer-banking operations in 36 of its 80 emerging market countries" with the fact that "[i]n the Emerging Markets Citigroup today has consumer finance businesses in 8 countries with assets of $2.5 billion."

    A major market targeted by CitiFinancial is Brazil. Charging interest rates up to 40%, CitiFinancial in early 2003 opened nine offices in Brazil, projecting that it would open 100 more branches over the next five years (Latin Trade, "Branching Out," July 2003). Regarding this expansion, CitiFinancial Mortgage senior vice president L. Ramesh has been quoted that "[i]n several markets, we are the first ones to give them consumer credit... [We ask:]'Where do you live? What kind of stuff do you have?'" (Bank Systems & Technology. "CitiFinancial Adopts Lending Model to Emerging Markets," April 21, 2003).

   Inquiring into "what kind of stuff do you have" is reminiscent of CitiFinancial's inquiries with its U.S. personal loan customers, in order to sell them credit insurance they may not need. ICP / FFW asked then-Citigroup CEO Sandy Weill about it at the company's April 2002 annual meeting; the Wall Street Journal finally got Citigroup's answer (hereby entered into the record):

When it makes a personal loan, CitiFinancial often asks the holders of personal loans to provide collateral. In some cases, according to CitiFinancial documents filed by Inner City Press, that collateral includes fishing lures and tackle boxes, record albums, tents, sleeping bags and lanterns -- items that CitiFinancial would almost certainly never bother to collect in the event of a borrower's default. Yet insurance is sold on the collateral in case it is damaged or lost.
"It's predatory: This insurance product has no rationale, because it's not credible that someone would want to have their loan paid with their leaf-blower," said Matthew Lee, executive director of the Fair Finance Watch project at Inner City Press. "Citigroup has not lived up to the subprime lending reforms it announced after acquiring Associates."
Citigroup officials concede seizing such collateral would be more hassle than it's worth. But they say providing such collateral on loans has a purpose -- "to make the borrower more responsible for paying the loan back," says Ajay Banga, Citigroup's business head of consumer lending. ("Efforts by Citigroup to Reform Subprime Unit Raise Questions," Wall Street Journal, July 19, 2002).

    Here, Citigroup acknowledged that while it asked its customers "what kind of stuff do you have?" in order to list the items as collateral and sell insurance on them, it has no intention of foreclosing on the collateral. In fact, ICP has been informed by current and former CitiFinancial employees that the property lists are compiled in order to sell insurance (American Banker, October 11, 2002, Pg. 1).

    CitiFinancial has opened in South Korea, charging interest rates of thirty percent. "Although these rates are higher than the annual 24 percent charged by credit card companies for similar cash advances, CitiFinancial has an edge in that their loans are cheaper than those extended by existing loan sharks... Another reason that people are drawn to the company is because of the renowned brand of its parent group, Citigroup. Customers thus tend to think the company will refrain from excessively aggressive collecting methods" (Korea Herald, July 30, 2002).

   The trust that Citigroup would eschew excessively aggressive collection practices, particularly overseas, would be misplaced. last would be wrong. The Asian Wall Street Journal of May 25, 1999 for example, "Paid Back: Citibank in India Has Hired Collectors Said to Use Threats," has reported on a Citibank loan in India being collected on with no less than a knife to the throat.

    ICP / FFW have been pointing out that not even CitiFinancial's few reforms in the U.S. apply to any of CitiFinancial's non-U.S. lending. Citigroup to date has dodged this question -- when most recently asked, by the Los Angeles Times (July 30, 2003), " Citigroup spokesman Steve Silverman said the company was proud of having 'very good' lending practices throughout the world and of how it has improved standards at the largest U.S. subprime lender, Associates First Capital Corp., which it acquired and wrapped into CitiFinancial in 2000." Above, ICP has timely contested not only that Citigroup has sufficiently reformed in the U.S., but that its practices "throughout the world" are anywhere near "very good" -- in fact, they are predatory.

Citigroup Is Insufficiently Compliant  to Allow 25 Million More Consumers to be Subjected to It

   The Citigroup is compliance-challenged is well known, including to the OCC, which as recently as July 28, 2003, entered an enforcement order, which Citigroup's CEO-apparent Chuck Prince gloated about in a July 28 press release (although, strangely, the OCC did not get his signature on the enforcement order, though it did get COO Bob Willumstad). Litigation around Citigroup's role(s) with Enron, Dynegy, et al. will continue -- COO Willumstad told Reuters (July 29) that "[w]e have set aside a significant amount of reserves for Enron and research matters, obviously, this is something that will play out over a long period of time, and we'll see how it goes." Citigroup's actions with respect to WorldCom are even more unresolved, at present.

   It is also far from clear that Citigroup has sufficient safeguards in place (as must be reviewed in connection with this Bank Merger Act application, under the USA Patriot Act).  Beyond Salinas, Abacha and all the rest, Citigroup continues being identified by government agencies as being lax on money laundering. [See, "Citibank CEO Docked for Money Laundering," Vanguard (Lagos) June 19, 2003.]

   Citigroup's standardless activities in Africa are worse than "mere" money laundering. In mid-1994, near the end of the 100 day period in which over 750,000 Rwandans were killed, the extremist Hutu regime went into "exile" in Goma, Democratic Republic of Congo f/k/a Zaire, where they purported to set up a branch of the National Bank of Rwanda, "which continued to place orders for arms and other supplies, and guarantee payments. A number of foreign banks accepted these orders made by the 'government in exile'... Pierre Galand of Belgium's council of development NGOs (CNCD) cites Citibank, Dresdner Bank (Germany) and Banque Nationale de Paris" (Le Soir, January 27, 1997).

    Citibank, now the largest bank in the world, shows up again in the Great Lakes Region, in the 2001 United Nations report on the traffic in conflict diamonds in the Democratic Republic of Congo:

The 56 page report details how transport networks and financial institutions accommodate the exchange of mineral resources for arms, and cash for arms.
"At the heart of the financial setting is the Banque de commerce, du developpement et d'industrie (BCDI) located in Kigali Rwanda ," explains the report. "According to some sources, there was an understanding between the President of Rwanda, Paul Kagame, Ugandan President Yoweri Museveni and the late Laurent Kabila on the collection and use of financial resources during the time of the AFDL rebellion."
The report uses an example to illustrate the links between BCDI, Citibank in New York, the diamond business and armed rebellion.
"In a letter signed by J.P. Moritz, general manager of Societe miniere de Bakwanga (MIBA), a diamond company, and Ngandu Kamenda, the general manager of MIBA ordered a payment of US $ 3.5 million to la Generale de commerce dimport/export du Congo (COMIEX), a company owned by late President Kabila and some of his close allies, such as Minister Victor Mpoyo, from an account in BCDI through a Citibank account.  "This amount of money was paid as a contribution from MIBA to the AFDL war effort."  Asked about the relationship between BCDI and Citibank in New York, Ba-N'Daw said that Citibank had been the correspondent bank of BCDI

   -- "Report Names Culprits in Central Africa's Dirty War," Environment News Service, 4/19/01

    How, despite this demonstrated lack of anti-money laundering and human rights standards, Citigroup now claims to be a leader in adopting environmental standards, is not known to ICP; the public record, despite Citigroup's Equator Principles and other recent announcement, militates in favor of the requested hearings and for the denial of Citigroup's applications.

This Proposed Combination Would be Anticompetitive and Harm Consumers

    It is especially troubling, in light of Citigroup's lax compliance culture demonstrated above, that there are consumer protection issues already with Sears' credit card operations. Sears is one of the few large lenders to have entered a guilty plea, for criminal bankruptcy fraud in connection with unrecorded reaffirmation agreements, leading to a $60 million fine and headlines like "The Sorry Side of Sears" (Newsweek) and "Judge: Sears 'preyed' on debtor; Retailer violated bankruptcy laws" (Boston Globe). See also, Denver Post of February 27, 2001, " New windows put woman's home at risk;" and "Tucson, Ariz., Man Says Sears Owes Refunds to Credit Card Customers," Arizona Daily Star of October 29, 2002. There are also serious consumer privacy questions raised, to be further elaborated at the requested hearing. See, e.g., "A Gold Mine of Data about a Consumer's Tastes, Pocketbook," Washington Times of June 17, 2001:

Sears obtains countless bits of information from consumers who use its credit cards. "Sears credit cards give us access to point-of-sale information that we wouldn't get when people use cash or other credit cards ," said Jan Drummond, a Sears spokeswoman. The department store has about 60 million credit card holders - 32 million to 33 million are active purchasers who buy something at least once a year. And Sears gains about 4 million new accounts a year.
The information collected includes everything from the customer's name, address and what they are buying to when they are buying it. Paying with cash doesn't reveal that information.

   The credit card industry, particular the store card industry, is notoriously "sticky" / non-sensitive when it comes to interest rates. See, e.g., the Columbus Dispatch of December 16, 2001, "Interest-Rate Cuts Elude Many Borrowers," listing Sears with the highest rates of the companies surveyed:

"Interest rates are even higher for store-issued credit cards, which average 20.4 percent, only slightly lower than the average a year ago, according to Cardweb.com. Lazarus charges 21.6 percent interest on its credit card, as do Marshall Field's, Jacobson's, Lord & Taylor, Kaufmann's and Saks Fifth Avenue. Not much different are Sears (21.9 percent), JCPenney (21 percent), Eddie Bauer (18.9 percent) and Talbot's (21.6 percent)."

   For the record, the foreseeable competitive effects of this proposal strongly militate for the hearing(s) ICP is requesting. Beyond the foreseeable anti-competitive impacts ("The deal will increase Citigroup's card portfolio to about $ 170 billion and solidify its market-leader position -- far ahead of No. 2 card issuer MBNA, which had a $ 107 billion portfolio at the end of last year," USA Today, July 16, 2003; " Recent figures from the Nilson Report indicate that the acquisition of the Sears store card will see Citigroup become the second largest private label card issuer in the US (behind GE Consumer Finance) with total private label receivables rising from $7.3 billion to $25.7 billion. Citigroup is already the largest general-purpose card issuer in the US and the world." Cards International, July 24, 2003.

   There are other questions: "The Sears announcement forced Richard W. Ussery, TSYS chairman and CEO, to address the possible repercussions of the buyout. Columbus, GA-based TSYS processes Sears' private-label and Gold MasterCard portfolios along with Citi's commercial cards. Ussery said it was too early to speculate on any changes but that TSYS has good relations with both firms. TSYS' processing deal with Sears lasts another seven years, he said. "We anticipate we will continue to service that (contract)," Ussery said. If Citi were to decide to cut the deal short, there would be a "substantial penalty to pay" and "it would probably be a couple years" before Citi could move the processing in-house or to another processor, Ussery said." CardLine, July 18, 2003

   There are numerous other questions, including how it in the public interest (and not contrary to the spirit of the Bank Merger Act and other applicable law and regulation) to subject at least 23 million more consumers to Citigroup's demonstrably predatory practices. ICP will make further presentation to this effect at the requested hearing(s).  On the grounds set forth above, public hearings should be held, and, Citigroup's applications should be denied.

If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,


Matthew Lee, Esq.
Executive Director
Inner City Press/Community on the Move
& Fair Finance Watch

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