Opposition to Citigroup - Golden State Bancorp, by Inner City Press / Community on the Move

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.

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).

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.

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.

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.

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 t