Inner City Press' Community Reinvestment Reporter

Inner City Press Community Reinvestment Reporter 2001-2002

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December 23, 2002

     Even as Christmas approaches, the madness of HSBC and Household mounts. Last week Inner City Press learned (only after submitting Freedom of Information Act requests) that HSBC amended the organizational structure that it included in its Nov. 27 applications to the OCC and New York Banking Department. The sole purpose of HSBC's amendments is to evade the Community Reinvestment Act: to avoid applying to the Federal Reserve under the Bank Holding Company Act. Additionally, HSBC has yet to submit any response to the predatory lending and other issues that have been raised to multiple agencies since November 18. So you ask: is this the way a reasonable -- even, a mainstream -- bank acts? No.

    ICP has renewed its request to the Fed that it require an application from HSBC, now under a different legal theory. Meanwhile, the NYBD last week agreed to extend its comment period until January 6. ICP telephoned the OCC's Western District Office on Dec. 20 to ask if the OCC is extending its comment period; apparently, that decision will be made on Dec. 23 or shortly thereafter. Ah, Christmas....

    Speaking of Christmas (gifts), HSBC proposes to pay Household's chairman Bill Aldinger $21 million for selling Household to HSBC. A variety of other Household executives, most of them left unnamed, are in line for multi-million dollar pay-offs. Predatory lending, apparently, is a lucrative field.

    ICP's Dec. 23 comments, submitted all over, include another sample Household loan, this time from Ohio. It began on May 27, 1997, as a second mortgage loan; it began with the forgery of the required proof of employment proof of income. The branch manager of the HFC office signed a (federal) Request for Verification of Employment form, with the name of non-existent employer. ICP has submitted to the regulators the Request for Verification of Employment form; ICP has also submitted an April 18, 2002, letter from this Employer stating that "during the time period indicated" nor at any other time, has anyone with the name HFC affixed to the Verification of Employment form been, in fact, employed in any capacity by the company at issue. This was outright forgery by Household, during a time frame not addressed by Household's recently announced predatory real estate lending settlement, done through HFC's branch system.

    Through this fraudulent second mortgage, Household "repeatedly and persistently telephoned" the borrowers, engaging in "high pressure sale tactics" to induce the borrowers to refinance for more money and at a higher rate. This was done on or about March 2, 1999, at a fixed interest rate of 16.759 percent. Credit life insurance and credit disability insurance were included "as a term and condition of the March 1999 loan," in an amount far greater than the purported restitution offered through Household's recent settlement of charges of predatory real estate lending.

   Household had purchased another outstanding loan, by Signet, to these borrowers, and promised to pay it off in connection with the March 1999 loan. But, as recounted in the attachment, Household never paid that loan off; another series of Household forgeries occurred.

    In response, the borrowers endeavored to contact Household's management, including current CEO William Aldinger. The borrowers then received a telephone call from Aldinger's secretary stating that if the borrowers again attempted to call Aldinger, Aldinger and/or Household would have them arrested.

     Pretty, ain't it? Trying to hold in one's mind two opposite thoughts -- Christmas, and the predatory lender Household -- is not easy, but ICP is trying. A slogan for this growing campaign: HSBC is a predatory lending wannabe. We aim to stop it; for now, happy holidays! Until next time, for or with more information, contact us.

    On December 9, submitted supplemental comments to the OCC, to the Fed, and to the New York Banking Department (NYBD). The comments to the NYBD, because they address in detail Household's proposed settlement of charges of predatory real estate lending, are summarized in this week's ICP HSBC Watch. To the OCC, ICP requested that a complete copy of the application HSBC submitted on November 27 be placed on the OCC's Web site, as a "Frequent FOIA Request" (as was done in Citigroup - Associates). To the Fed, ICP amplified its Dec. 4 argument that HSBC must submit an application to the Fed under Section 3 of the BHC Act. As set forth in its NYBD comments, ICP is making a similar argument to the NYBD.

    This week, state regulators and attorneys general will be under pressure to "finalize" the proposed settlement of charges of predatory real estate lending that they announced on October 11, 2002. The "agreement in principle" stated that

"The states will file their consent decrees in appropriate jurisdictions simultaneously on a date mutually agreed to by those states, which shall not be later than December 15, 2002.... Household will enter into separate consent degrees" [by December 15, 2002]

      ICP has been told that a mass- / simultaneous filing is still planned, for December 16, despite the intervening factor of HSBC's proposed acquisition of Household, and the issues timely raised about HSBC's record. Last week, ICP raised this issues to state attorneys general. "The fix is in," we have been told. For the reasons set forth in ICP Dec. 9 comments to the NYBD (available by clicking here), we hope not.

    Significantly, the Washington State attorney general's web site currently lists, as a frequently asked question, "Why didn't you seek enough money from Household to fully compensate all harmed consumers?" The answer given, at, might have made sense in October: "Our main concern was to provide as much compensation to consumers as possible. Analysts told us that the amount of money Household will be forced to pay still leaves the company financially stable so that they could actually comply with the settlement rather than become insolvent. If we had demanded too much, the company's financial stability could have been put at risk, which could have resulted in no consumer restitution whatsoever."

       To the degree, apparently indisputable, that Household's financial situation in early October 2002 had a role in determining the scope of the Proposed Settlement -- for example, that it does not address or reform Household's non-real estate practices, including its tax Refund Anticipation Loans ("RALs"), its live checks and other high-cost personal loans, that many of Household's loans are worth more than the underlying homes, making refinancing nearly impossible, and that, even as to real estate lending, that it does more to ensure that Household does not simply seek to recoup what it "gives up" in points and fees by charging higher interest rates, without regard to the credit scores and credit histories of borrowers (see below) -- those conditions have now changed, at least according to Household and HSBC.

   ICP has raised to the NYBD, and to state attorneys general, the following Q&A from Household's October 11, 2002, conference call with stock analysts:  Household's CFO stated that while Household in the Proposed Settlement "agreed to limit origination points on real estate loans to 5%.. We expect to be able to mitigate the negative impact of that in a couple ways. First will be a slightly higher coupon...". Then:

Q: the term sheet that you guys put out today, I didn't see anything about mandatory arbitration. Can you tell us where that stands?

ALDINGER: It's unaffected.

Q: Unaffected? It will continue to be in place on all your loans going forward?


Q: Was that something that you guys had to argue for?

ALDINGER: No, it was never raised.

SCHOENHOLZ: It was never raised.

   Household's senior management's claim that the state attorneys general never even raised the issue of Household's abusive mandatory arbitration clauses also militates for a reconsideration and retooling of the Proposed Settlement. 

* * *

    As reported from Hong Kong by Reuters on Nov. 20, HSBC "said on Wednesday it hoped a challenge by a U.S. consumer advocate group would not delay its takeover of finance firm Household International The advocate group, Inner City Press/Community on the Move, has challenged the deal because of what it calls Household's predatory lending tactics. 'I certainly hope it won't delay the deal,' said David Eldon, a director of London-based HSBC Holdings. 'I think one has come to expect that in any potential takeover there will always be people who will object to certain things whether they are accurate in their objections or not,' he told reporters on the sidelines of a business conference. 'I certainly would not believe that we have ever done business anywhere that would be consider unethical. It's not our style, not our nature and anybody who know us would have agreed to that.'"

     Well, we know HSBC, and we disagree. As simply one example, HSBC closed its South Bronx office in 1999 (see below). Regulators also appear to disagree: on November 20 in Madrid, Spain's Commission on the Prevention of Money Laundering and Monetary Infractions imposed on HSBC a $2.1 million fine for failing to identify account-holders by name, and for not investigating the unusual operation related to numbered overseas accounts linked to collapsed brokerage Gescartera (Reuters, 11/20/02)

    On Nov. 22, Reuters reported "talk [that Household's] deal to be bought by British bank HSBC Holdings was falling apart... Household declined to comment on the talk, HSBC was not immediately available, and analysts said the speculation probably was untrue since HSBC, known for being conservative, likely did careful due diligence before announcing the deal." The Guardian newspaper reported on "rumors swirled through the City that [HSBC's] $14 billion acquisition of American lender Household International had fallen through because HSBC had discovered that it might have to put more than $500 million aside to cover the cost of possible litigation."

    Inner City Press received calls from all over the world (well, Asia and Europe), asking why Household and HSBC had both taken down all or parts of their Nov. 14 presentations to analysts from their web sites. "The merger agreement is contingent on Household's securitization of a some high percentage of its outstanding loans," said one caller. Other conditions in the still-not disclosed merger agreement that have been suggested to ICP include that the predatory real estate lending settlement with the state attorneys general be approved and finalized by a particular date. Another caller suggested, "They gave a wrong answer in the Q&A."

    If so, it wouldn't be the first time in connection with this proposal. There are two example, one arcane and the other both more ludicrous and troubling. First, HSBC filed a "correction" with the U.S. SEC on November 20, stating that in its Nov. 14 filing, "[a]ll the US dollar figures are correct. However, in respect of the year ended 31 December 2001, the Hong Kong dollar figure in the 'tax on ordinary activities' line should have read '(15,506).' This affects the Hong Kong dollar figures for profit on ordinary activities after tax, profit attributable to shareholders and retained profit in respect of that period." The second involves not Hong Kong dollars but a glance into the breakdown of political translations:

      Business Week Online of November 17 ran an interview with HSBC's chairman in which John Bond stated that "Household has changed its lending practices, improved risk controls, and put in place an oversight committee led by Senator Orrin Hatch and other well-regarded people who have a track record in consumer affairs." Well. As we've now noted to Business Week, beyond our disagreement that Household has sufficiently backed-away from the predatory aspects of its lending, the second part of Sir John Bond's statement is even more ludicrous. Orrin Hatch is not on any oversight committee of the publicly-traded Household International. Household has "collected," as a sort of second-tier Citigroup, a few ex-politicians and ex-regulators. But a sitting U.S. Senator is not, and could not be, among them. We've heard of name-dropping, but this is a bit much. Perhaps HSBC will now file another "correction," with the U.S. SEC and regulators in London and Hong Kong. ...

  [Material cut to save server space; for more, contact us]

November 4, 2002

    Citigroup purports to have weathered the storm about its subprime lending practices. Last week it gained Federal Reserve approval to acquire Golden State Bancorp, with the Fed deferring resolution of the predatory lending allegations until it completes an examination of CitiFinancial (this exam was announced 15 months ago). And then there's the matter of Citigroup's linked proposed settlements with the Federal Trade Commission and certain attorneys in a case in California, Morales et al. versus Associates and Citigroup ("Morales").  On October 28, the judge in the Morales case, Richard Kramer, requested more legal briefs. In the proposed Morales settlement, Citi would  get a broader waiver from consumers (who would not be able to raise the fraudulence of their loans, even as a defense against foreclosure) than Household got from the state attorneys general. It now appears clear the Citigroup would not have agreed to settle with the FTC if it were not getting a waiver, through this California case.

     In this Morales case, it is proposed that $25 million to distributed to approximately 130,000 consumers who had their loans flipped: that's less then $200 per consumer. Meanwhile the plaintiffs' lawyers in Morales have requested between $20 million and $25 million in attorneys fees.

    As simply one example, there's an already-certified class action in Montana; the lead named plaintiffs are Elizabeth and Jim Wombold. As first reported by the Great Falls Tribune, Citigroup attorneys Ben Klubes and Neil Ugrin opposed a motion that these Montana plaintiffs' cases proceed under Montana law (which includes a state Consumer Protection Act which might require the forgiveness of the loans). Mr. Klubes was part of a team of Citigroup lawyer who in 2001 interviewed and intimidated ex-CitiFinancial employees in South Carolina whose stories ICP had put in front of the Federal Reserve Board. Last month Mr. Klubes was quoted that the $25 million proposed settlement in Morales would be distributed to, and require releases from, 130,000 consumers ($192 per consumer). For shame...

    Here's a bit of good news: on October 29, ACE Cash Express announced it has agreed with the OCC to stop offering loans and services "on behalf of" Goleta National Bank. ACE also bragged that by the end of the year it will be able to transition to "other short-term loan services" to replace Goleta in 90 percent of its stores. This, including the identity of the other "short term loan service," bears watching. Relatedly, H&R Block is under increasing fire for not disclosing the litigation against the tax "Refund Anticipation Loans" it offers. On November 1, H&R asked that trading in its shared be halted then it finally disclosed two cases. Its press release bragged that it "has not lost any of the more than 20 lawsuits filed against it." It's settled some -- through the type of reverse auction / disarmed counsel that some are alleging regarding Citigroup.

October 14, 2002

     On October 11 at a press conference in Chicago, a $484 million settlement between Household and regulators in 19 states and the District of Columbia was announced. Regulators in California and Washington State had leaked news of the settlement to reporters the day before. Sources tell Inner City Press that on the eve of the settlement 20,000 additional victims entitled to compensation were identified: regulators were angry, Household just shrugged. In a conference call with stock analysts on October 11, Household CEO Bill Aldinger began by saying, "I thought this was a secret until I saw it in the newspaper today." He went on to emphasize that the settlement including "no fines and no penalties."

    The state regulators' settlement with Household, unlike the Federal Trade Commission's and class action lawyers' Sept. 19 settlement with Citigroup, contains injunctive relief and required reforms. 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: the Citigroup settlement that the FTC and California-based class action lawyers bragged so much about 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: that's 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, 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.. The Citigroup settlement, proposed on Sept. 19, is looking more and more like a product of a reverse auction (settling with the lawyers who demanded the least, in exchange for high attorneys fees or a perceived political win) and of "disarmed counsel" (a legal term-of-art meaning the same thing). ICP will be raising this issues during the Citigroup "fairness hearing" process, and has already raised the issue to the Federal Reserve Board and other regulators, in a filing submitted on October 14 (click here to view).

     But there's more to be said about Household. During the Oct. 11 conference call, Household's new director of compliance Jim Kaufman, until recently the Pennsylvania Banking Commissioner, stated that Household will implement a "secret shopper" program in which testers will do through the entire lending process; it will be run by Ernst & Young. The use of the term "secret" rather than "mystery shopping" was in clear reference to CitiFinancial's so-called mystery shopping, which ICP exposed earlier this year as far from mysterious: branches were told when the tests would be conducted (by Barry Leeds & Associates), and what they'd be tested for. The stock analysts' concerns in this regard were limited to costs: how many people would have to be hired, how would it impact on Household's earnings. Household announced that it is selling its savings bank, and that it expects to make up for a reduction in fees by charging higher interest rates. Household's Dave Schoenholtz said, "Adoption of our best practices will cost us about a dime." He meant ten cents a share, estimated to rise to thirty cents a share in 2005.

    The analyst from J.P. Morgan Chase asked if the settlement affected Household's high-rate tax Refund Anticipation Loans (or RALs), made with H&R Block. No, Aldinger and Schoenholtz responded.

    On October 7, ICP and others participated in an informal meeting held by the Office of Thrift Supervision on H&R Block's application to charter a savings bank. Some background: ICP timely protested H&R Block's application on May 26, 2002; the issues raised included whether sufficient consumer protection safeguards exist in Option One's subprime lending (which would be a major activity of the proposed thrift); H&R Block's high-rate tax RALs, etc.. ICP also noted that the OTS' response to ICP's May 10, 2002, Freedom of Information Act request for the entire application had been incomplete.

    On October 4, ICP received by fax a ruling on its FOIA appeal, stating that certain information including a list of litigation involving the applicants would now be released. Specifically, the ruling from OTS Special Counsel Dirk S. Roberts states that "I have determined to release redacted versions of two confidential exhibits listing litigation involving the applicants... [C]ase name and index number are themselves public information... The information I have determined to release will be provided to you by mail early next week with the hard copy of this letter."

    On October 7, the OTS conducted the informal meeting in this matter. Among with ICP, CRA, NCLC and CFA participated. H&R Block faxed a copy of its "new" RAL disclosure to several commenters (but not ICP), and explicitly asked that the disclosure "not show up on Web sites" (presumably this one). Okay, then, just a summary: ICP asked if Option One even offers a "prime" mortgage product, and directed the OTS to a troubling decision concerning H&R Block's RALs issued earlier this year by the U.S. Court of Appeals for the Seventh Circuit.

    At the conclusion of the informal meeting, ICP emphasized that the formal meeting should not be held until H&R Block firms up its positions on the issues raised, and until ICP has had sufficient time to review the litigation list, which it requested on May 10, 2002. ICP asked H&R Block if it would provide summary information about the cases, in order to expedite the process. H&R Block has not provided any such information.

    In terms of (at least implicit) lobbying, ICP also asked H&R Block about a statement by Option One's director of compliance in the American Banker newspaper of October 1, 2002 ("Option One Mortgage Corp., Irvine, Calif., will no longer make high-cost loans in Georgia, according to Dale Sugimoto, vice president of compliance"); the response was that Option One does not make high-cost loans in Georgia. But since the informal meeting, ICP has found and read the National Mortgage News of October 7, 2002 ("Georgia Becomes A High-Cost Ghost Town"), reporting that "Dale Sugimoto, vice president for compliance at Option One, said, 'We are very concerned about the harsh liability' if a high-cost loan is found to be in violation of the statute."

    This inconsistency -- why would Option One be "very concerned" about "harsh liability" if it is true that it makes no high-cost loans in Georgia? -- will now be discussed at the formal meeting, as will the effects of the ACE check cashing machines in H&R Block offices.

      Finally, how could we not take note of Sen. Phil Gramm's transition to the private section, to USB Warburg? A day after the announcement, USB Warburg's CEO John Costas told a banking conference in London that he believes that recent deregulation of U.S. banking laws will not be reversed. "The Glass-Steagall Act has been unscrambled [by the Gramm-Leach-Bliley Act] and can't be put back together," he said. We say: the revolving door is entirely bipartisan -- Robert Rubin to Citigroup, Phil Gramm to USB Warburg...

* * *

    Inner City Press had wondered, at sought at the FTC's September 19 press conference to ask, whether customers obtaining this proposed "Redress" (said to average $1,000) would be releasing any or all claims against Citigroup. FTC Chairman Muris pointedly prohibited Inner City Press' reporter from asking any follow-up question, despite earlier allowing as many as three questions per reporter. Now from the documents we see: 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...". 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.

     It is illuminating 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. Questions have arisen, and will be more formally raised, regarding why the FTC did 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...

     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 (who we will leave unidentified for now) 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...

       An update on last week's whistleblower story: 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.

     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 Citigroup settled 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), Bob Willumstad claimed that CitiFinancial is a leader in the consumer finance industry. Reflecting on her employment since the days of Commercial Credit, which was successively run by Sandy Weill, Bob Willumstad, Marge Magner and others, Ms. Raleigh characterizes these executives as criminals. 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. "Do the right thing every time," indeed. This will be updated.

      On Goldman Sachs: ICP opposed Goldman's application for a bank charter a month ago. ICP has since obtained additional portions of Goldman Sachs' application. Exhibit V is the CRA Plan, for which Goldman Sachs' inappropriately requested confidential treatment. Now we know why: on page 10 of the Business Plan (portions of which are still being withheld), Goldman Sachs states that

By marketing its credit and deposit products to Goldman Sachs' high-net-worth clients, the Proposed Bank would gain access to the expertise and reach of Goldman Sachs' PWM distribution force... The Proposed Bank's products would be available to Goldman Sachs' high-net-worth clients through their investment professionals.

    This is inconsistent with the letter and spirit of the CRA. Goldman Sachs' Proposed Bank would explicitly (only) make its "products... available to Goldman Sachs' high-net-worth clients through their investment professionals." Goldman Sachs' "CRA Plan" is laughable. While it states that "the Bank's core business would be conducted nationwide," it seeks to limit its CRA assessment area to Salt Lake City, Utah. As to Salt Lake City, Goldman Sachs brags that in 2001 it "partnered" with three other organizations to "plant 30 flats of flowers." CRA Plan at Page 2. Beyond that there is virtually no detail.

     The Business Plan states, as a "hallmark[] of the Goldman Sachs corporate culture," that "our assets" include "our... reputation." Plan at 4. ICP's first timely submission raised issues concerning Goldman Sachs' current standardless involvement in questionable subprime lending. To that we've now added the following: Goldman Sachs' makes standardless investments in companies reputed to be sweatshops. For example, Bloomberg News of February 27, 2001, reporting on " Yue Yuen Industrial (Holdings) Ltd., which makes athletic footwear for Nike," states that "Goldman Sachs Group Inc. owns 'slightly less' than 4 percent, said Mary Nee, an executive director at Goldman Sachs, at the meeting. Goldman bought 7.2 percent in the company in 1996."

    The San Francisco Chronicle of May 17, 2002, reported that "Yue Yuen... earned harsh criticism from human rights groups -- including its system of fining workers for misbehavior and its practice of paying mainly by piece rate."

     As with questionable subprime lender, ICP asks: what standards does Goldman Sachs have for its investment in companies that have "earned harsh criticism from human rights groups"? None, apparently.

     Finally, for this week, an interim update on the flaw Inner City Press exposed last week in U.S. Bancorp's 2001 Home Mortgage Disclosure Act (HMDA) data, as available to the public on the web site. We found that the FFIEC site did not report Metropolitan Statistical Area-specific data for U.S. Bank in California, despite the fact that U.S. Bank has branches there. We timely raised this to the Office of the Comptroller of the Currency on September 16, on U.S. Bank's application to acquire Bay View Bank's 57 California branches. U.S. Bancorp has told us that it's the "Feds' fault." On September 20, Inner City Press received in the mail from the Federal Reserve an envelope with a disk and a cover letter stating:

Several metropolitan statistical areas (MSA) where the reporter [U.S. Bank] has offices were inadvertently omitted from the reporter's panel information, and they were never included prior to the creation of the 2001 aggregate tables and disclosure reports, which began on May 9, 2002... We apologize for an inconvenience this omission may have caused. If you have any questions regarding the procedures we used to correct this error, please call Pat Dykes (Federal Reserve Board).

    Since we did have questions, on September 20 Inner City Press called the Federal Reserve Board's Ms. Dykes. Among our initial questions: since under the HMDA regulation, the OCC is in charge of the HMDA data of U.S. Bank, N.A., why did the disk and letter from the FRB? Ms. Dykes explained that, through the FFIEC budget, the OCC (and presumably OTS and FDIC) pay the FRB as a contractor to process their institutions' HMDA data.

   Thereafter Ms. Dykes genially attributed the lack of the required U.S. Bank HMDA data on the FFIEC web site by referring to the chaotic atmosphere at the FRB in the first half of 2002, including reports of anthrax in the mail and the attendant screening and microwaving and semi-destruction of envelopes. Apparently, whereas in previous years the FRB analysts took time to compare institutions' submissions to those of prior years, in early 2002 each FRB analyst had to call approximately 150 institutions asking for their HMDA submissions. A document entitled the Q595 Edit Report was sent to U.S. Bank, asking if the data were correct; somehow the responding fax signature page was separated from the pages that proceeded it.

     Inner City Press, without casting any aspersions on the diligence of FRB staff, asked whether the errors in the 2001 publicly-available data base will be corrected. Ms. Dykes indicated that there are no procedures in place for uploading corrected data. Reflecting her commitment to her job, she said she'd love to do such an update. Apparently, then, it is a question of resource allocation -- and hence a question for higher-ups at the FRB and the other agencies (or Congress).

     The question: how badly inaccurate does this publicly-available data set have to be -- five percent is the figure being throw around of the 2001 data set -- before the FRB / FFIEC decide to upload corrected data? The data is relied on not only by community groups, but by the FRB and other agencies as well, for CRA assessment and fair lending enforcement. We believe that a known five percent error rate is too much, and that the data set must be comprehensively corrected and uploaded. Will the FRB / FFIEC do so? We will see. We have formally asked the OCC to extend its comment period on U.S. Bank's application to acquire 57 California branches of Bay View, until U.S. Bank's California HMDA data is available as it should be. The OCC has acknowledged receive of our request and hopes to rule on the request shortly. Developing...Until then, for or with more information, contact us.

Update of September 19, 2002: The Federal Trade Commission announced a $215 million proposed settlement with Citigroup at a press conference today. Having closely observed this process, Inner City Press concludes that the proposed settlement ill-serves consumers. It does not reform in any way CitiFinancial's current practices, practices about which even the FTC has expressed concern, for example by obtaining and filing in the case an affidavit from a long-time CitiFinancial (and not Associates) employee, Gail Kubiniec. In both 2001 and 2002, FTC staff attorneys telephoned ICP and requested copies of evidence ICP has obtained regarding CitiFinancial. ICP provided the FTC with proof that CitiFinancial continues hard-selling single premium credit insurance on consumer loans, and sells insurance on the household goods it takes as collateral for consumer loans, including items such as fishing rods, ice chests and random video tapes: items on which CitiFinancial does not foreclose (rendering the insurance of little to no value to consumers). None of this is reformed by the FTC's proposed settlement.

     An Inner City Press reporter called in to the FTC press conference. FTC Chairman Muris' was brief -- from 11:08 to 11:15 a.m. -- followed by a question and answer session. After a representative of Inside Mortgage Finance asked three questions, Inner City Press' reporter asked:

"In light of the affidavit the FTC obtained from long-time CitiFinancial employee Gail Kubiniec, and evidence the FTC requested and obtained from community groups, why has the FTC taken no action on CitiFinancial's current and continued sale of single premium credit insurance on non-real estate consumer loans, nor on the sale of insurance on household items such as fishing rods and ice chests, on which CitiFinancial does not foreclosure?"

    The response: if we had chosen to litigate the case, it would have taken years before consumers saw this money. $215 million is our largest settlement to date.

ICP's reporter than said, "I have a follow-up question."

FTC: "Next question." No follow-up was allowed, despite the fact that the reporter just prior to Inner City Press' was allowed three questions, including two follow-ups.

     Thereafter the Wall Street Journal's Paul Beckett asked, in essence, how many other private lawsuits remain against CitiFinancial. The FTC emphasized a single California class action which is being settled in conjunction with the FTC case.

     A Los Angeles Times reporter asked about the mechanics of the payment of redress to consumers. Although the FTC did not say it, we will: it is not at all clear what percentage of this $215 million will be paid out. Consumers will receive a mailing. Given the low response rate to CitiFinancial's previous mail-outs offering the opportunity to apply for a lower interest rate, it would appear that less under 60%, and probably less than half, of those receiving the mailing will respond. Why? In part because just mailings are perceived as junk mail. [Side joke: FTC chairman Muris plays Ed McMahon]. The FTC states that the average amount paid to eligible consumers would be $1,000. That's not much. And despite the FTC's attempt to focus the press on the $215 million figure as "unprecedented," $215 million to the $1 trillion-in-assets Citigroup means far less than $60 million did to First Alliance. In fact, this settlement / redress money may well have been provided for in Citigroup's agreement to acquire Associates First Capital Corp. in the Fall of 2000.

       To editorialize (more): the FTC today announced a fraudulent and deceptive settlement, not too different from late night weight-loss commercials. It may be a "win-win" for Citigroup (which is mis-perceived to have now resolved these problems) and for President Bush's FTC (which cites an "unprecedented" $215 million figure than may, in fact, be far less) -- but it is hardly a win for consumers, either past consumers, or those in the present and future. This will be raised, in detail, to the Federal Reserve and OTS in further opposition to Citigroup's pending applications to acquire Golden State Bancorp; it will be raised and documented in other forums.

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?

August 26, 2002

     Our focus this week: the stealth application by Goldman Sachs to form an FDIC-insured bank in Utah. ICP submitted comments opposing Goldman's application. ICP's concerns regarding this application include Goldman Sachs' reported intent to obtain and use FDIC insurance but serve only the most affluent customers; Goldman's growing involvement in questionable subprime lending; and the stealth manner in which Goldman, this application, and the agencies have proceeding in this proposal.

   ICP submitted a Freedom of Information Act ("FOIA") request for a copy of the application, to the FDIC in San Francisco and Washington, but by the deadline received no response, much less the actual application documents. Goldman Sachs and the agencies have been cagey in discussing the application with the press and public.

    The first public report, it appears, was in the Financial Times of August 9, 2002 -- a full month after Goldman Sachs submitted its application to the FDIC. The delay is attributable to the FDIC failing to provide notice of the received application on its web site. The FT (8/9/02) reported:

...Goldman's intention in seeking its first such banking license is limited to providing bank accounts and related services to wealthy individuals. However, having the banking license would give Goldman greater flexibility in attracting deposits and making loans, should it decide that it wants to expand its lending. Goldman is interested in obtaining a license for a Utah industrial loan corporation, a kind of bank that is regulated by the state and the Federal Deposit Insurance Corporation....   Michael Jones, chief examiner of the Utah department of financial institutions, said yesterday Goldman had indicated it was working on an application for a license. "We expect it to be filed," Mr Jones said. A Goldman Sachs spokeswoman declined to comment. Investment banks have gravitated to Utah to set up banking arms because they view federal banking regulators with suspicion, seeing them as slow to embrace innovation. Federal regulators, in turn, are worried that industrial loan corporations and similar structures could be put to wider use than intended. This has led to predictions by some lawyers that such loopholes could be closed. In congressional testimony this year, Mark Olsen, a member of the Federal Reserve board of governors, said such uses raise "supervisory and safety and soundness issues". (Emphasis added.)

    The CRA requires all insured depository institutions, such as the one Goldman proposes to form, to serve their entire community, including low- and moderate-income neighborhoods. A business focus on using FDIC insurance to serve only the affluent is contrary to CRA. One arguably-applicable provision in the CRA regulation is the "wholesale" bank designation. But, in order to evade needed bank/financial holding company regulation, Goldman is not seeking to establish a bank, but a "non-bank bank," an Industrial Loan Company (not a wholesale bank).

    In fact, not only does Goldman apparently propose to serve individuals (but only non LMI individuals) -- it already impacts LMI communities, inter alia in the roles in plays in the securitization of mortgages, including questionable subprime mortgages. It is imperative that this side of Goldman Sachs' business, which impacts LMI communities, be scrutinized and acted on in this proceeding. Investment Dealers Digest of August 12, 2002 reports:

Credit Suisse First Boston and Banc of America Securities, which have been dominating the whole loan market in recent years, may be greatly scaling back their participation in the sector due to dwindling profits there... Goldman Sachs and Morgan Stanley have upped their presence in the market lately-and their aggressive tactics to purchase loans have priced out some of the veteran players in the whole loan market. (Emphasis added.)

     The FDIC, in connection with this application subject to the CRA, should pay particularly close attention to Goldman Sachs Mortgage Co.. Bloomberg News of June 5, 2002, reported that

A mortgage finance unit of Goldman Sachs Group Inc., the third-biggest securities firm by capital, filed to sell as much as $10 billion of securities backed by home loans. The New York-based company's GS Mortgage Securities Corp. affiliate filed with the Securities and Exchange Commission to be able to sell mortgage-backed notes or certificates, from time to time as needed. Once approved by the SEC, the Goldman unit would have the securities on hand to sell in any combination or amount up to $10 billion... Finance companies commonly package loans and other receivables into securities, a practice called securitization, to capture an immediate profit and spread to investors the risk of holding the loans.

     Goldman Sachs Mortgage Co. turns up in legal notices of foreclosure and property transfers all over the country. Some recent examples, to make clear that a CRA program limited to the MSA in which Goldman Sachs seeks to charter its loophole bank, would not be sufficient:

Sunday Advocate (Baton Rouge, LA.) July 21, 2002 Pg. 16-E: FILED JUNE 4, 2002

The Tennessean (Nashville, TN) April 30, 2002 Tuesday PROPERTY TRANSFERS

Neelys Bend Road, 2351 - Robert Wilson Jr. Tr to Goldman Sachs Mortgage Company, $97,328.20.

Omaha World-Herald April 1, 2002, Monday

Goldman Sachs Mortgage to Fairbanks Capital Corp., 2559 Hartman Ave., $ 14,000.

The Augusta Chronicle February 28, 2002 Thursday LEGALS, Pg. O13
NOTICE OF SALE UNDER POWER Georgia, Richmond County
Under and by virtue of the Power of Sale contained in a Deed to Secure Debt given by Pauline K. Beasley to Nationscredit Financial Services, Inc., dated April 23, 1998, and recorded in Deed Book 593, Page 1440, Richmond County, Georgia records, as last assigned to Goldman Sachs Mortgage Company (Emphasis added.)

   Regarding Nationscredit (and Equicredit), and Goldman Sachs' apparent lack of standards in dealing with and enabling questionable subprime mortgage lenders, see below. It must be noted that Goldman Sachs' involved in subprime lending is not limited to mortgages: for example, Goldman has securitized high-rate cards loans for the controversial (and recently disciplined) subprime lender Providian. Cards International of May 17, 2002 ("Providian Finds Buyer for Subprime Assets") reported that " Providian has at last found a buyer for its subprime portfolio, after putting it up for sale last November. In a securitized deal involving two investment banks, it is effectively selling its $2.6 billion high risk portfolio to US subprime issuer CompuCredit and CardWorks - a US- based third party servicer. The purchasers plan to finance the acquisition through a securitization, arranged by affiliates of Goldman Sachs and Salomon Smith Barney."

   The San Francisco Chronicle of April 16, 2002, reported: "Providian Financial Corp., staggered by ballooning loss rates last year when shaky borrowers stopped paying their bills, has struck an agreement to sell off its most-troubled accounts. The San Francisco credit card issuer said it would sell $2.6 billion of its high-risk portfolio to partnerships created by Goldman Sachs Group Inc., Salomon Smith Barney, CardWorks Inc. and CompuCredit Corp. The portfolio contains about 1.7 million accounts."

    Goldman Sachs also buys subprime franchise loans. The American Banker of December 4, 2001, reported that "[a]nother California banking company burned by dabbling in subprime lending funded mostly by brokered CDs was $4.1 billion-asset Bay View Capital Corp. of San Mateo. After losing $326 million last year, Bay View closed the main source of the loss, a unit that lent to high-risk owners of franchise gas stations, convenience stores, and fast-food restaurants... Bay View has sold $278 million of franchise loans to Goldman Sachs Mortgage Co., reducing its subprime portfolio to about $274 million, from $823 million at the beginning of the year."

   Goldman Sachs also purchases subprime lenders, out of bankruptcy and otherwise. The Asset Securitization Report of April 15, 2002, reported that the subprime lender "Amresco was purchased out of bankruptcy last December by NCS I, which is partially owned by Fortress Investment Fund and Goldman Sachs Mortgage Co., an affiliate of Goldman Sachs."

    More detailed regarding Goldman Sachs' aggressive growth in MBS, the Asset Securitization Report of January 14, 2002, reported:

...Goldman Sachs leapt to the top of the charts... UBS Warburg...Right behind was Goldman Sachs, a firm not usually renowned for its structured finance might, with $82.5 billion in global deals underwritten compared with a mere $12.7 billion in 2000, for a similar increase... [B]ankers said that the success of players like Goldman comes down in part to aggressiveness and the exploitation of weaknesses in rivals... "Our rise in the rankings underscores our increased commitment to the business. We have strengthened our franchise in virtually all areas," said Jonathan Sobel, managing director and head of the mortgage department at Goldman Sachs. "We are optimistic about the market in 2002." Case in point: Goldman late last year co-led a lucrative $7.1 billion home equity loan deal from EquiCredit (Emphasis added.)

     The FDIC should be aware that the subprime lender EquiCredit was a controversial business that was critiqued and attacked by community groups and consumer protection agencies all over the country. See, e.g., Crain's Chicago Business of May 21, 2001, "'Predatory' Practices: Neighborhoods face aftershocks of foreclosure wave;" the Atlanta Journal and Constitution of August 17, 2001, "Bank dumps controversial loan program; 'Predatory' practices under fire;" the Chicago Tribune of August 16, 2001, "Bank to end high-risk lending" (reciting "accusations that EquiCredit was involved in so-called 'predatory lending' techniques, including charging interest rates and fees that lead borrowers into foreclosure. Last year, a Chicago ordinance passed to combat the practice prompted EquiCredit to scale back its operations here, although officials deny the company engaged or engages in predatory lending"; the (Charleston) Sunday Gazette Mail of February 06, 2000, "Unlicensed brokers conceal loan terms, lawsuit alleges High-ranking official comes to defense of home equity firms;" etc.. ICP was on record concerning EquiCredit's practices. See, e.g., the Post and Courier (Charleston, S.C.) of May 7, 1998; Bloomberg Business News of October 22, 1997; etc..

    And so the question arises: what standards does Goldman Sachs have in place to ensure that, in its growing subprime lending purchase, securitization and trading business, it is not enabling predatory lenders.

    ICP has formally timely asked the FDIC to pose this question (and others) to Goldman Sachs, in connection with Goldman's application....

July 29, 2002

     This week: Citi and scandal(s). The Citigroup-Golden State Bancorp proceeding gets crazier all the time. While Citigroup has still not finished answering the Federal Reserve's questions of July 3, the Fed on July 24 wrote that the public comment period won't be extended. (More specifically, the Fed's deputy secretary wrote that "[a]ny comment received after the close of the comment period, including your letter of July 22, will be made a part of the record of this case at the sole discretion of the Board.")

    Meanwhile, the Fed has started taking-back some of its questions. In a July 19 write-up of a July 11 telephone call between Citigroup and Fed staff, Citigroup "explain[ed] that CitiFinancial's information systems could not provide the data as requested in item 27 of [the Fed's] letter dated July 3, 2002. On July 12, [we] called [Citigroup's counsel] with a revised version of item 27 to replace the version provided in the July 3 letter." How very accommodating. In light of the accounting scandals being debated in Congress, it is interesting that the data CitiFinancial "could not provide" concerned loan delinquencies...

     Citigroup continues to game the Fed's "ex parte" rules, which require Citigroup to send copies of its submissions to commenters like ICP. On June 21, Citigroup sent ICP a copy of a submission which stated that it would be providing a list of outstanding litigation against CitiFinancial "shortly." Citigroup provided this list to the Fed on July 12 (that is, during the comment period) -- but did not send it to ICP. The Fed mailed it to ICP on July 19, a day after the comment period expired; then the Fed on July 24 declined to extend the comment period. How very convenient.

     What is inconvenient for Citigroup is the accelerating Congressional investigation of its deals with Enron and others. One wonders why the Fed has not sent the Citi-Golden State commenters (or at least those like ICP who timely raised these issues) any copies of questions to Citigroup about these matters. ICP has raised that to the Fed in a July 29 comment letter, click here to view.

     A non-Citigroup update: the payday lender Check n' Go, which is applying to buy a small bank in Illinois, wrote ICP (and others) a letter on July 24, stating among other things that "[t]o further meet the needs of the community, we are proposing the establishment of a Consumer Advisory Board, as part of the Bank of Kenney... We would welcome the opportunity to discuss further ideas regarding CRA compliance that you may have." To us, this sounds like the strategy of ol' Household International, which created a similar "consumer" advisory board, to little effect....

     In positive news, on July 26 Cuyahoga County Common Pleas Peggy Foley Jones denied the American Financial Services Association's request for a preliminary injunctions against Cleveland's anti-predatory lending ordinance, despite the Ohio General Assembly's legislation, adopted in February, purporting to forbid local lending laws. Ah, home rule. Cleveland Law Director Subodh Chandra said, "People's homes are important things. You're not playing cards with someone and cheating them out of 50 cents. Unscrupulous lenders should get ready to face the consequences." Robert McKew, general counsel for AFSA (of which Citigroup and AIG, among others, are members), said that the city's law, if it stands, will cause some lenders to leave Cleveland, increase costs or stop lending to higher-risk customers. "I suspect there are a lot of meetings being held in Cleveland at companies as far as what their lending policies are going to be," McKew said. Well, good.

    Echoes of the scandal(s): On July 23, Republican Sen. Peter G. Fitzgerald asked Lynn E. Turner, the former chief accountant at the SEC, "When we repealed Glass-Steagall and did away with all remnants of the wall between commercial banking and investment banking, do you think we made a mistake?" When told about the idea Wednesday, Sen. Christopher Dodd of Connecticut, the committee's No. 2 Democrat, just shook his head in bewilderment. Is it likely the committee would even consider revisiting Gramm-Leach-Bliley? "No," he said definitively.

    From CNNfn of July 26: Q: "We had the CEO, Mr. Harrison, coming out this week and saying, we didn't do anything wrong, and furthermore, I'd do everything we did again. Bold, brazen." A: "Our friends at J.P. Morgan are going to regret that comment for quite a long time." Yep. And when the going gets oily, the oily... buy auto parts. On July 26, Morgan Chase announced it has reached an agreement to buy a Japanese auto parts subsidiary of Nissan Motor Co for around $86 million.

    Self-serving analysis: J.P. Morgan analyst Catherine Murray upgraded the stock on July 24 stating, "We find it hard to believe that Citigroup knowingly participated in fraudulent activity." Morgan Chase neither, of course...  

     From the always-illuminating Cleveland Scene: Bank One's executives have contributed over $57,000 to Ohio state Treasurer Joe Deters since 1997. Now the Ohio Deposit Board -- composed of Deters and two others-- has awarded a $25 million contract to Bank One to distribute child support checks. The fee is more than twice what New York and Pennsylvania pay for the same duties; no one else got to bid on the contract. If you thought "pay to play" was illegal, we were wrong, at least in this case.

June 24, 2002

     What are we focusing on this week? Why Citigroup of course. While Citigroup is applying to acquire Golden State Bancorp, documentation of presumptive predatory lending at CitiFinancial continue to flow in to ICP, and then to the regulators. On June 24 ICP filed sixteen more exhibits, including a CitiFinancial's "Field Implementation" memo dated May 28, 2002, (finally) informing branches in thirteen states that "[s]tarting June 3, 2002, an offer is being sent to certain existing Real Estate secured loan customers (including Equity Plus) to switch their current Single Premium Credit Insurance Products to Monthly Premium Credit Insurance."

    More than a year ago, Citigroup loudly announced it was turning away from single premium credit insurance (only on real estate loans; CitiFinancial continues to impose it on "personal" loans, more than half of its business). Now a year later, some CitiFinancial customers in Alabama, Idaho, Indiana, Maine, Maryland, Mississippi, New Hampshire, Nebraska, Rhode Island, Tennessee, Texas, West Virginia and Wisconsin are being offered "the option" to switch to monthly premium insurance. We say "some customers" because CitiFinancial explicitly excludes several groups of borrowers from the offer, including all customers with "Pre-Computed Real Estate Loan[s]" and customers deemed "Cross-Border." These customers are called "exceptions" to whom the offer is not sent. The memo says, "attached are a few questions and answers that may be helpful to you when speaking with a customer about switching to Monthly." The question is, helpful how?

    The Q & A, also obtained by ICP, essentially directs CitiFinancial staff to emphasize the drawbacks of Monthly Premium Credit Insurance, to say "your payment may be higher due to a variety of reasons... whatever product(s) you currently have as Single Premium Credit Insurance will be the only products(s) you can change to Monthly Premium Insurance provided you still quality for those products... It will be necessary to complete an insurance applications." (Emphasis added). The Answer to the Question "Why can't I pay for my Home and Auto Security Plan or Safeguard on a monthly basis too?" is "Those products were not designed or priced for the fees or premiums to be paid on a monthly basis." (Emphasis added). So, CitiFinancial essentially discourages even real estate loan customers from switching from Single Premium Credit Insurance, and continues to offer only single premium "Home and Auto Security Plan" and "Safeguard" insurance.

    ICP has also received documentation of a "personal" loan made earlier this year (May 2, 2002) by CitiFinancial at 24.99% interest. To borrow $6,166.85, the customer pays $4,690.75 in finance charges, $563.22 for credit disability insurance, $353.35 for credit life insurance, and $250.00 in "property insurance." As reflected by the Disclosure Statement, the loan is "secured" by "Misc Pers[onal] Prop[erty]." The list of property on which Citi has written explicitly "Single Premium" credit insurance includes "various compact disks," a lawnmower, a leaf blower and various camera lenses. We'll say it again: CitiFinancial's only purpose in assembling "miscellaneous personal property" lists on consumer loans is to write insurance, in this context a product that has no benefit to the borrower and is per se predatory.

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

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

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

    No photogenic mega-pledge (such as that called for in a L.A. Times editorial of June 17 -- in context we salute the LAT and advocates working for this) will make these CitiFinancial predatory lending issues go away. The directives come directly from the top, from Sandy Weill to Bob Willumstad and Marge Magner to Mike Knapp and on down to the CitiFinancial branches. ICP has also submitted sample documents from a CitiFinancial Tennessee office where the District Manager sends a "Send Branch" message earlier this month stating: "Three things to discuss 1. I am not going to beg you for foreclosures I will just write U up 2. I am not going to beg for R/E bus[iness] 3. Need 20 LPE Control dues." (Emphasis added, spelling left as in original; note that "LPE" means "Loans Per Employee"). Another memo shows that CitiFinancial Branch # 101 on two "Blitz Nights" made 18 calls, four contacts, and application only for "RBO" -- refinance balance only, i.e. flipping. CitiFinancial's Jim Chakales hand-wrote on the memo, regarding Branch # 722, "This is two nights without an app[lication]?" Apparently flipping is better than nothing -- hence the prevalence of flipping at CitiFinancial.

    Citigroup has made certain statements in the public record in recent days. The American Banker of June 24, 2002 ("Too Much Information? Citi Mystery-Shop Sparks Debate," Page 17) reports:

In a memo dated Nov. 20, 2000, Citifinancial branch officers were notified that the tests would occur during a two-month span and vaguely described the two shoppers who would pose as customers. A copy of the memo was provided to American Banker by... Inner City Press/Community on the Move and was confirmed as authentic by Citigroup. [ICP] also provided the memo and other material to the Federal Reserve and the Office of Thrift Supervision last week as part of a package intended to buttress his case that regulators should withhold approval of Citi's deal to buy Golden State... A mystery-shopping consultant who performs these tests on New York-area banks, speaking on condition of anonymity, said: "With that level of advanced notice, it sounds like these guys are trying to manage their results."
Citigroup said its warning did not undermine the exercise. "That we conduct mystery shopping is no mystery," said Christina Pretto, a spokeswoman. "We told all interested parties, regulators, community advocates, our own employees, and the media that we would start a mystery-shopping program." Citi disclosed the tests because "it was one of the many things we could do to ensure that our policies were being followed and to enhance our customers' confidence in our practices," Ms. Pretto said.  (Emphasis added).

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

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

May 27, 2002

   In light of Citigroup's May 21 announcement of a proposal to acquire Golden State Bancorp and Cal Fed Bank for $5.8 billion, and predatory lending issues that are sure to arise in opposition to Citigroup's applications (see, e.g., the San Francisco Chronicle and Reuters re the proposal), we turn this week to contrasts between the approaches of politicians to Citigroup and Household International.

     Earlier this month, New York state comptroller Carl McCall issues a press release stating that Household's failure "to voluntarily come to terms with those who have been harmed by its business practices has resulted in community action to prompt the court and government officials to review Household's business practices." And last week, the "Boston City Council... asked the city's retirement board to study whether the pension plan should sell off shares of Household International Inc... A recent national class action lawsuit claimed Household routinely overcharged borrowers." Boston Herald, May 23, 2002.

     Most community-based advocacy organizations, including ICP, applaud these moves for scrutiny and accountability at Household. But they raise a question: why not Citigroup as well? While both state comptroller McCall and the Boston City Council tied their announcements to litigation against Household, it's well known that Citigroup is being sued for predatory lending by not only private litigants, but also by the U.S. Federal Trade Commission. Mr. McCall's statement about Household's failure "to voluntarily come to terms with those who have been harmed by its business practices" is equally if not more applicable to Citigroup. But, wait, we forgot: Carl McCall used to work at Citibank. And more substantively, Citigroup is significantly more active than Household in giving political campaign contributions.

     A routine search of the always-useful Web site, for "Citigroup," reflects "34 records found in the 02 database," including, simply as examples in March 2002:

Citigroup giving $85,000 on March 27, 2002, to the Republican National State Elections Committee;  Citigroup giving $60,000 on March 22, 2002 to the Democratic DSCC;  Citigroup giving $15,000 on March 5, 2002 to the Republican Governors Association Conference;  and Citigroup giving $50,000 on March 15, 2002 to the Democratic DCCCC.

    By contrast, "Household International" appears in the 02 Database only three times; each of the donations was in 2001 (none in 2002), and all three were to Republicans ($2,000 to NRCCC, June 29, 2001; $15,000 to RNC, April 19, 2001; and $25,000 to NRSC, December 28, 2001).

      Another contrast: last week, Household issued a press release trumpeting their hiring of the Pennsylvania banking commissioner James Kauffman as its new " director of compliance for consumer lending." Note that when Citigroup wants to buy perceived government legitimacy it hires ex-Treasury Secretary Robert Rubin, ex-IMFer Stanley Fischer, ex-Secretary of Energy Bill Richardson (temporarily), and the Federal Reserve's money laundering "guru" Richard Small. Household hired a regulators from Pennsylvania, who previously was " the chief credit policy officer for Keystone Financial Inc. and the chairman and chief executive of Keystone Bank." (We'd have expected that to have quietly been dropped from his resume, following the Keystone scandal last year. Anyway--) Citigroup is playing in a different league; while its practices and the scope of litigation against it are as bad if not worse that is true of Household, we have not seen announcements by state comptroller McCall or the Boston City Council against Citigroup...

* * *

     And now, long-delayed echoes of a 1999 political CRA scandal. Last week Inner City Press received a Freedom of Information Act (FOIA) appeal response from the Office of the Comptroller of the Currency (OCC). Provided on appeal were some 500 pages of initially withheld documents, the majority of which concerned the OCC's project to develop of a list of "pro-CRA bankers" at the request of the Clinton administration Treasury Department. Even on appeal, OCC Deputy Chief Council Daniel Stipano withholds the names of the banks and bankers so-identified. Redacted summaries are phone conversations, however, are provided:

"[Redacted] thought she was being asked to provide names of bankers who were happy with the new, simpler examination procedures... She called [redacted] because his bank had just had a CRA exam, and received an outstanding rating... [Redacted] said that bank liked the new examination methodology."

"Phone conversation with [redacted] with whom she frequently had worked, that the OCC would like to place her name on a list of bankers whose institutions had had a positive experience with CRA.... [Redacted] stated that [redacted] remained positive about CRA, but given the political nature of the subject, she needed to follow bank protocol and talk to her legal department. She was in Philadelphia and asked for some additional time. Later in the day, she called [redacted] to say that she still had no confirmation from the bank's legal department."

"[Redacted] said that the bank would require something in writing in review, otherwise, she could not give her approval. [Redacted] then left a voice-mail message to [redacted] explaining that she would not be able to provide a request in writing. [Redacted] added that the agency already had received enough names and therefore no names of bankers based at [redacted] would be placed on the list."

     For the OCC to list be redacting the names of the banks, and the names of its own employees, more than two years after these events is laughable. Given the change in administrations, it is particularly notable that the OCC would still be citing to its "deliberative process" privilege... And the beat goes on.

May 6, 2002

     It was a jumping week for the anti-predatory lending issue -- a new bill introduced in the U.S. Senate, a new study released, a class action filed -- and in the midst of it, the Federal Reserve unilaterally postponed for a full year the minuscule reforms it announced on February 16. The Fed had issued a final rule that, beginning with 2003 Home Mortgage Disclosure Act data, lenders would have to disclose the interest rate spreads of certain loans. Then, after lenders lobbied for a one year extension, and community organizations including ICP opposed that, the Fed sided with the lenders.

      The Fed’s May 2 press release states that "[f]inancial institutions and their trade associations requested a postponement of the effective date until January 1, 2004, on the grounds that a 2003 deadline does not afford institutions adequate time to take the steps necessary to ensure full compliance with the new rules." But lenders already keep track of the interest rates at which they make their loans. The Fed's press release doesn't reference the September 11 plane-bombings, but the banking trade associations (shamelessly) did. Industry lobbyist Charlotte Bahin of America's Community Bankers said that after the banking trade organizations sent in a March 11 letter to the Fed, they "met with Fed officials and we came away cautiously optimistic they would postpone the rule." Then, as previously reported, the Fed called selected community groups, ostensibly to solicit their opinions. But the fix was already in...

    "Financial literacy" as Trojan horse: another industry group, the Consumer Bankers Association on May 1 contested the need for predatory lending legislation, saying that 60 percent of larger banks sponsor financial literacy programs. Most recently, Wells Fargo has wheeled out a set of CD-ROMs, handing them out like the ubiquitous America Online start-up kits -- all this while Wells Fargo Financial continues to make consumer finance loans at 25% and higher...

* * *

April 29, 2002

    This week: three perspectives on the secondary market in questionable subprime loans. The New York City Council has "set aside" a pending anti-predatory lending ordinance which would have barred investment banks which pool or trade loans with predatory characteristics from doing business with NYC. The deputy director for finance of the NYC Office of Management and Budget, Alan Anders, opposed the ordinance, stating that

"[t]his legislation would also reach banks and dealers that innocently market securities backed by pools of mortgages that may include predatory loans, as defined [by the proposed ordinance]. While the OMB supports the efforts to crack down on predatory lending, we strongly oppose this legislation [which is] likely to disqualify [from doing business with the City] all investment banks, letter-of-credit banks and other financial institutions. This is because these financial institutions would not be able to confirm that institutions they may loan funds to or place securities for, are not directly or through affiliates engaged in predatory lending as defined by the local law. Consequently, this would call into question the city's ability to sell its bonds and continue its capital program." Emphasis added.

     Mr. Anders appears to be saying that "all investment banks" engaged in the pooling and trading of subprime mortgages are "not able to confirm" that the underlying loans are not predatory. But there are rating agencies, there are due diligence departments; we are counting on these same financial institutions to safeguard against money laundering. If these institutions are unable to assess whether what they trade in complies with the law, what are we saying? An aside: Wall Street's dominance of NYC politics is shameful. Leaving aside Mayor Bloomberg's path to City Hall, last week ex-Mayor Giuliani signed on to represent Merrill Lynch in the unfolding scandal surrounding intentionally misleading stock touts. Thus Mr. Giuliani's (and NYC's) post 9/11 gets-things-done aura is for sale to the highest bidder, in this case Merrill Lynch -- a growing player in questionable subprime loans, by the way....

    Second perspective: a banker on the Federal Reserve Board's Consumer Advisory Council, Thomas FitzGibbon of MB Financial, disagrees with NYC Mayor Bloomberg's OMB's stance on the impossibility of due diligence. Mr. FitzGibbon notes the institutions pools and selling the loans is a finite field on which regulatory (or, he prefers, reputational) pressure can effectively be brought to bear:

"there are some natural things that happen at the Wall Street level that certainly are driven more by financial impact than by any regulatory intervention," FitzGibbon said. "If you've earned a reputation of having product that's tainted, people don't come back to you a second or third time. And Wall Street relies on second and third sales... I think the important part of this is what is called 'representations and warranties' sections of these securities... Perhaps the enforceability of 'put back' of the reps and warranties should be stronger... If you want to control a commodity like mortgages, whether they're first mortgages or seconds, and if you want to earn money from it, you have to make sure that it's untainted or that business will go away. So it's in their self-interest to make sure it happens right."

    This "self-interest" / magic-of-the-market argument works only if there are sufficient repercussions for failing to have standards. With the current lay of the land, it has fallen to community and consumer groups to bring about such repercussions....

    There are also, of course, legal hooks, including the "assignee liability" provision of HOEPA, 15 U.S.C. 1641(d), which even the Federal Reserve has clarified "is not limited to violations of TILA as amended by HOEPA...This interpretation is based on the statutory text and is supported by the legislative history." Id. See also S. Rep. No. 103-169, at 28 (1994) (assignee takes HOEPA mortgage loan subject to "all claims and defenses, whether under [TILA] or other law, that could [otherwise] be raised against the original lender."). Federal Register of Dec. 21, 2001. So what was that, again, about "innocently" purchasing predatory loans?

* * *

April 22, 2002

    East coast, West coast, the week in CRA: in midtown Manhattan on April 16, Citigroup had its annual shareholders' meeting at Carnegie Hall. Outside on 57th Street, advocates protested, including on issues of predatory lending. Inside, the meeting began with CEO Sandy Weill alone on the stage with a Citigroup banner behind him. Citigroup's other directors, including Robert Rubin, sat silent in the front row staring up at Sandy. Two directors called in sick. The first item on the agenda was the election of directors. Skadden Arps corporate lawyer Ken Bialkin retired from the board, and Bob Lipp left along with the spun-off Travelers insurance business. The one new face was George David, CEO of United Technologies. Questions were raised from the audience about Citigroup's numerous interlocking directorships with other corporations, most notably AT&T. But there were no other nominees other than those proposed by Citigroup.

    On the agenda was a resolution calling on Citigroup to study linking executive compensation with "addressing predatory lending practices." An ICP member spoke in favor of this resolution, noting not only the Federal Trade Commission's predatory lending lawsuit against Citigroup, but the failure by Citigroup to propose any reforms for CitiFinancial's personal loan business, in which loans are made at 25 to 30% interest rates, replete with credit insurance on personal property such as fishing rods and ice chests (these examples, from ICP's ongoing CitiFinancial / Tennessee investigation, were given). Sandy Weill responded that Citigroup is taking the issue seriously; he claimed that "many states" now see CitiFinancial as a leader in subprime lending. No other Citigroup board member spoke during the meeting.

   Each attendee was given a stack of Citigroup brochures several inches thick. Interestingly, a 44-page pamphlet entitled "This is Citigroup Corporate Citizenship" does not mention CitiFinancial or subprime lending even once. But the first substantive section of Citigroup's 2001 annual report concerns its "Consumer Group;" the fourth paragraph brags that CitiFinancial "now has the largest consumer finance operation in North America with some 2,200 branches."

    Down in Washington, the House Financial Services Committee approved an FDIC "reform" bill. An amendment that would have tied banks' FDIC insurance premiums to their community reinvestment and anti-predatory lending records was defeated; approved as part of the bill as an amendment rebating FDIC insurance premiums 50 cents for every dollar a bank holds in lifeline deposits. The large bank trade associations opposed this amendment (and reportedly oppose the whole bill); the trade association for smaller banks expressed its opposition for an amendment that would have stripped the lifeline banking provision from the bill. Not addressed by the bill are the billions in dollars being shifted from brokerage accounts to FDIC insured accounts by Citigroup's Salomon Smith Barney and by Merrill Lynch, with neither institution increasing its payments into the FDIC insurance fund....

    Jumping to the West Coast, and related at least as to safety and soundness, the Office of Thrift Supervision is considering a thrift holding company application by Oregon-based "entrepreneur" Andrew Wiederhorn and his Fog Cutter Capital Group. Mr. Wiederhorn's Wilshire Capital Group declared bankruptcy in 1998, and he was forced out. Now he is applying under HOLA to increase involvement and control in the insured depository institution First Bank of Beverly Hills. ICP has opposed the application...

   Also on the West Coast, opposition has been filed to the proposed class action settlement concerning subprime lender First Alliance. The opposition states that the settlement would let off the hook Lehman Brothers, First Union (Wachovia) and others who enabled First Alliance and its lending practices...

* * *

     One downside of the back-slapping about the $60 million settlement the Federal Trade Commission announced last week with First Alliance is the breathless reporting of the settlement amount as unprecedentedly high. It works out to $ 2,500 to $ 3,300 per wronged borrower. According to the case and settlement, there were 18,000 victims 18 states, including 6,000 in California, 2,000 in New York, 1,000 in Florida, 600 in Arizona, and 278 in Massachusetts. Question: what does this settlement size portend for FTC v. Citigroup? In announcing the First Alliance settlement, Massachusetts A.G. Tom Reilly said, "We're all working together, from coast to coast, both the federal and the state governments. So if you're out there and if you're preying on vulnerable people, particularly older people, we're going to get you. That's the message." Attention, Citigroup....  In the FTC v. Citigroup last, last week Citigroup filed opposition to the FTC's motion for a discovery order, and a separate motion to "compel specific responses to [Citigroup's] First Set of Interrogatories."

    Meanwhile, Wall Street move further into subprime: GreenPoint announced on March 18 that it sold "substantially all'' of its manufactured-home loans -- $843 million worth to Bear Stearns' EMC Mortgage Corp... Also last week, the American Banker reported that Merrill Lynch has created a new unit to buy and securitize subprime loans. They call it " Surf," for specialty underwriting and residential finance. unit will help the New York-based company compete with Lehman Brothers Inc., Bear Stearns & Co. Inc., investment banks that are already big players in the secondary market for subprime mortgages. The AB quoted E. Reilly Tierney of Fox-Pitt, Kelton that the move is "not a radical change" but that it will "enhance" Merrill's asset-backed securities sourcing and give it "more original flow product on their asset-backed securities desk," and that the First Alliance / Lehman case "'is the only incident [he's] aware of' in which a secondary-market investor has been sued for buying subprime loans. He said he expects that none of the charges of predatory lending against Lehman will stick. " We'll see about that... Merrill's involvements in subprime include Merrill Lynch Mortgage Investors Inc. mortgage pass-through certificates series 1998-FF1 and 1998-FF2, and, mostly recently, the securitization of Superior Bank / Alliance Fund loans it bought from the FDIC... In terms of Merrill's growing FDIC-insured deposits (in connection with which Merrill has scarcely developed or expanded its CRA programs, and is beating the FDIC insurance system), note that last week the N.Y. Banking Department provided notice that Merrill Lynch Trust Company of New York has merged into Merrill Lynch Trust Company, FSB; MLTCNY's branch in lower Manhattan was passed over to Merrill Lynch Bank USA of Salt Lake City, Utah...

    The OTS announced last week that at least 58 of the agency's examiners will be "separated" in a reorganization program that will be announced formally in the near future. The reduction in examiners will amount to about 5 percent of the total 1,167 OTS employees. The reorganization will result in a cut of about 260 OTS employees, about 180 of whom would come from the regional office headquartered in Chicago. The agency spokesman said the plan would involve 43 "separations" from the Chicago facility -- which regulated Charter One, which recently switched from a thrift to a national bank charter...

     An update: the Office of Thrift Supervision formal meeting on AIG was held on February 20, from 2 to 4:15 p.m.. AIG brought seven representatives, three of whom spoke. The meeting began with the OTS' presiding officer denying AIG's request that exhibits ICP had submitted be "stricken from the record.," and denying ICP's request that a second formal meeting be held.

    ICP went first, and summarized its objections. For AIG, Joel Epstein began. Among other things, he stated that the OTS had met with AIG FSB's board of directors in August 2001, after the OTS had approved AIG's acquisition of American General conditioned on AIG preparing a new CRA and business plan. Next, Mr. Pierce stated that American General's Utah branch has already been closed, and that AIG is moving forward to sell American General's two California branches. Mr. Pierce states that "the Bank does not offer subprime lending products." Mr. Pierce emphasized that the $600 million in assets that AIG FSB acquired along with SunAmerica in 2001 are "volatile," and must be invested in short-term securities; this will be particularly important, he said, "if there's another terrorist attack." AIG's outside CRA counsel recited his resume -- he testified in Washington about the "new" CRA, for example -- then characterized ICP's view of CRA as "credit allocation." He cited as precedents that CRA programs of Raymond James' thrift, and El Dorado. ICP responded that AIG's plan -- to limit its CRA responsibilities to a single MSA while lending to its own employees nationwide, and while refusing to address questions raised about the ex-American General (now AIG) subprime lending -- would create a negative CRA precedent. ICP noted that AIG has refused to provide documentation about its employee-base, lending to which will be AIG FSB's focus.  ICP urged that the application be decided by the OTS in Washington, that a new and more credible CRA plan be required, and that the OTS act on the information that ICP entered into the record.  At the conclusion of the formal meeting, the OTS presiding officer stated that while all of ICP's exhibits will be included in the OTS' internal administrative record, certain exhibits will not be made available to the public. The above summary is prepared without benefit to the transcript of the formal meeting, which should become available next week. Developing...

    Finally, for this week, from the dog-bites-man department: the OCC on February 19 announced 24 new CRA ratings -- none of them below satisfactory.   And so it goes in Washington.

* * *

February 18, 2002

     This week we continue our focus on the largest U.S. bank (Citigroup) and insurer (AIG). Inner City Press' inquiry into CitiFinancial's practices continue, right now with a focus on Tennessee. Further documents received include a memorandum to CitiFinancial's Southeast Division from Division leader Wendell R. Miller, dated November 20, 2000. That is, during the pendency of Citigroup's applications to acquire Associates First Capital. In the memo, Mr. Miller tells all branch staff when to be expecting (and to be prepared for) the "mystery shopping test" that Citigroup had told its regulators would be performed. The dates of the "mystery" shop are specified, as well as what will be tested for: "do we quote the same rates, LTV, etc." The implication is, be sure to keep the offers consistent during the duration of the test; not to worry, it will end in January 2001. The memo was cc-ed to Tim Baechtold, Division Operations Manager, and to K.C. Mead and Ed Starkey.

    Another memo, this time for Regional head Jim Chakales, reveals the interest rates charged to different tranches of CitiFinancial customers for "Equity Plus" loans. These are home-secured loans, and yet customers with "excellent" credit histories are changed 18.99% interest. Those with "average" credit histories are charged 20.99%; those with "Weak/Fail" credit are charged 23.99%. All of these loans are secured by the borrower's home....

    On February 11, ICP filed comments with the Federal Reserve opposing an application by Taiwan-based Chinatrust. Beyond its operations in Taiwan, Indonesia, Hong Kong, India, Paraguay and the Philippines, Chinatrust owns 17 bank branches in the United States, including five in New York. Chinatrust excludes Bronx County, the lowest-income county in New York, from its CRA assessment area. In its most recent CRA performance evaluation by the FDIC, for its Maryland assessment area Chinatrust was rated Needs to Improve.

    Finally, for those interested, the hearing on ICP's comments regarding AIG's / American General's practices has been set for February 20 by the Office of Thrift Supervision. But AIG is still seeking to withhold basic information about even its CRA plans...

January 22, 2002

     The good CRA news of the week was Federal District Court Judge David O. Carter's decision not to release Lehman Brothers from the predatory lending case against First Alliance. In a ruling released on January 14, Judge Carter wrote, ""Lehman's credit facility made First Alliance's fraudulent practices possible." This is an argument that ICP and other have been advancing for some time: that the Wall Street firms which make warehouse loans to, and securitize for, subprime lenders bear some responsibility for the lenders' practices. The L.A. Times of Jan. 15 quotes Lehman spokesman William Ahearn's claim that Lehman is no more liable than "the phone companies that provided phones so they [First Alliance] could call up their customers and solicit them."

     In 1999, ICP challenged Lehman Brothers' application to the OTS to acquire the subprime lending Delaware Savings Bank. The OTS deemed it an "emergency transaction," but in response to the issues ICP raised, obtained a commitment-letter from Lehman, dated June 30, 1999, stating "that Lehman Brothers will continue to include, in connection with its underwriting, loan purchases and financing activities, review procedures appropriate to the circumstances involved which seek to identify predatory prices practices by its clients." Especially in this light, Lehman's position is bogus.

     Also bogus is Household's new $12 million advertising campaign. It's an upscale campaign, including media buys in shows like "Nightline" and "Meet the Press." Household claims it is trying to raise the "visibility" of its brand among "opinion-leaders." In reality, it's pure spin, so that when Household is named as a predatory lender (most recently by the California Department of Corporations), legislators will recognize the name and... take appropriate action. Expect to see Household's political contributions rise as well.

     An update on ICP's challenge to NetBank's applications to acquire RBMG and its subprime unit, Meritage: the Florida Times-Union of January 15 reported on the challenge, and quoted "Meritage spokeswoman Jerri Franz" that "because Meritage doesn't sell or generate any loans, Franz said, the company is essentially colorblind in the process. It buys the loans in bulk and never knows how many homeowners are white and how many aren't." This is a laughable response. First, Meritage reports HMDA data, by race. Second, it's worth noting that Jerri Franz was the longtime spokeswoman for EquiCredit, when that company was coming under fire for predatory lending. At that time, Ms. Franz never advanced the argument that EquiCredit was exempt or beyond the reach of the fair lending laws. The same newspaper quoted her on 8/31/00, in an article entitled " EquiCredit Corp. Knows 'Predatory' Line a Fine One." For what it's worth, Ms. Franz used to flack for First Union, all the way back to 1987.... The OTS has confirmed receipt of ICP's protest, and indicates that the "expedited" time-frame for considering the applications that is listed on the OTS' Web site is simply NetBank's request, not necessarily the OTS' position. Developing...

    A second update: in response to ICP's December 7, 2001 comment to the FDIC on Citigroup's two applications to shift non-insured overseas deposits to Citibank FSB, the FDIC wrote ICP on January 15 stating that "the FDIC has decided not to grant your request for a hearing... We feel that the material you have forwarded to this office will allow the FDIC to perform a thorough review and in-depth analysis to address your concerns." That would seem to imply that the FDIC has not (yet?) approved Citigroup's application, which Citigroup wanted approval for by January 6, 2002. Then again, with the FDIC, one never knows...

     Wachovia has announced that it plans to close 200 branches, including 34 in low- and moderate-income census tracts. A question to ask: how many more branches are adjacent to LMI tracts, and serve the residents of such communities?

January 7, 2002

    Among the more positive CRA news last week was the OCC's Jan. 3 announcement that it has ordered Eagle National Bank to sever its relationship with the payday lender Dollar Financial Group. Many organizations, including ICP, have raised to the OCC that Eagle simply rented its national bank charter to Dollar. The relationship of Goleta National Bank and ACE Cash Express is not dissimilar. But at least the OCC has finally done something. The Federal Reserve was presented in late 2001 with evidence of Well Fargo's involvements with payday lenders. ICP commented:

ACE Cash Express... references a "Credit Agreement dated as of July 31, 1998, but effective as of December 16, 1998 [with] Wells Fargo Bank (Texas), National Association" and also an "Amended and Restated Credit Agreement dated November 9, 2000 [with] Wells Fargo Bank Texas, National Association." The San Francisco Examiner of August 10, 2000, reported that "Wells Fargo offers its own payday advance...". The check cashing empire Dollar Financial Group... discloses in its most recent 10-K that its "overdraft facility is secured by an $8.0 million Letter of Credit issued by Wells Fargo Bank under the revolving credit facility." The FRB should inquire into Wells' subprime lending and related activities, including support to check cashers and payday lenders.

   And what has the Fed done to date? Well, nothing.

     In Kansas City, some movement is afoot. In the Fall, a hearing was held at Metropolitan Missionary Baptist Church at which evidence was presented of loans at interest rates up to 800 percent; families paying thousands on $300 loans without making a dent in the principal. Now in development is legislation that would prohibit payday lenders from using district attorneys as collection agents. Currently, in cases where borrowers write postdated checks as collateral for some payday loans, they can be prosecuted when the lender later cashes the checks. In a particularly good sign, organized labor is getting involved. "Many of our members may find themselves unemployed in the coming months," says Gary Kemp, executive secretary of the Greater Kansas City Building and Construction Trades Council. "Some of them might fall prey to these payday lenders." Ain't that the truth.

  The Seattle Post-Intelligencer of January 4 ran a thoughtful round-up on WaMu-Dime, musing that

in the coming weeks, Washington Mutual may find itself with a relatively new task - burnishing a corporate image that has recently come under increasing scrutiny, and criticism... The Dime acquisition prompted opposition from a group that objected to Washington Mutual's practices in lending to the subprime market (customers with poor credit records)... The New York-based Inner City Public Interest Law Center, which opposed Wamu's acquisition of Dime Bancorp, says [it] found "cognitive dissonance" between what Wamu believe its performance to be and what his group found on examining the bank's record. On issues such as safeguards against predatory lending, he said, "It's a mixed story with Wamu."

     Yes, these stories are decided mixed. Since CRA is primarily enforced in connection with banks' merger and expansion applications, it's worth reviewing the continuing decline in U.S. bank merger applications. The year of 2001 was a majory slow-down for bank and thrift M&A in the U.S.: 227 deals were announced, worth $40.05 billion. (Fourteen of those $40 billion was Wachovia). That compares to 278 deals worth $94.48 billion in 2000, and 504 deals worth $289 billion in 1998. SNL Securities' Marcey Dodd says she expects in 2002 "probably a similar number or lower" than 2001's 227 announced deals. "We're on sort of a downward consolidations trend. The number of banks that are eligible targets is not as large as it was." Most of the expansion proposals, even by U.S.-based banks, will be beyond the U.S. Last year, for example, HSBC took control of the Egyptian British Bank and has been expanding (like cancer?) in the region, with affiliates in Saudi Arabia and subsidiaries in Qatar, the United Arab Emirates, Oman, Jordan, Lebanon and the Palestinian territories. StanChart, meanwhile, remains one of nine short-listed bidders seeking control of Bank Central Asia, the third-largest in Indonesia. Standard Chartered said its announced freeze on expansion into new countries did not affect its plans for Indonesia, where it already has a stake in Bank Bali.  There is work to be done...

December 10, 2001

    CRA, CRA, how many ways can you be debased and evaded? We'll focus this week on efforts in that regard by the largest bank and largest insurance company in the United States.

      At the beginning of last week, Inner City Press stumbled across a notice for two applications to the FDIC by Citibank FSB. ICP requested copies of both applications, and they arrived at week's end. They're a doozy: in the first, Citibank FSB is seeking to acquire two branches of Citibank International, and the $1.1 billion in currently-uninsured deposits they hold; in the second, Citibank FSB is seeking to acquire $1 billion in (again uninsured) "International Banking Facility" deposits currently held by Citibank, N.A.. Why might this be of interest? Well, Citigroup has already been undermining not only CRA, but also the whole FDIC insurance regime, by shifting Salomon Smith Barney's accounts into Citi's FDIC insured banks, while not paying any more FDIC premiums or concomitantly expanding its CRA programs. Now it proposes to shift $2 billion more into its saving banks -- and again, no projected expansion or improvement in its CRA programs. ICP has submitted comments, in the brief extension granted by the FDIC, on issues ranging from money laundering to Citigroup's 2000 lending record. For example, in the New York City Metropolitan Statistical Area ("MSA") in 2000, for conventional home purchase loans, Citibank denied loan applications from African Americans more than five times more frequently than applications from whites. Citibank denied Latinos 3.5 times more frequently than whites. This is much worse than other lenders here: the denial rate disparities for the industry as a whole in 2000 were 2.20 for African Americans, and 1.97 for Latinos.

     In the Oakland MSA in 2000, again for conventional home purchase loans, Citibank FSB denied loan applications from African Americans 5.43 times more frequently than applications from whites. Citibank denied Latinos 3.22 times more frequently than whites. This is much worse than other lenders in this MSA: the denial rate disparities for the industry as a whole in 2000 were 2.38 for African Americans, and 1.70 for Latinos. Citigroup's high denial rate disparities for protected classes in this MSA are not explained by any greater-than-average outreach. Even added with CitiMortgage, Citibank FSB made a lower percentage of its loans to African Americans and Latinos than the aggregate industry did.

    In the San Francisco MSA in 2000, Citibank FSB made 325 conventional home purchase loans to whites, only three to Latinos, and none to African Americans. Even cumulated with CitiMortgage, it made only six such loans to Latinos, and still none to African Americans. For the record, the aggregate industry in this MSA made 1370 such loans to Latinos in 2000, 223 to African Americans, and 12970 to whites. For these three grounds, the aggregate made 9.4% of its loans to Latinos, and 1.5% to African Americans. For the culmulated Citi, the figures were 1.4% of loans to Latinos, and, obviously, zero to African Americans.

    In the Chicago MSA, again for conventional home purchase loans, CitiMortgage denied loan applications from African Americans 6.68 times more frequently than applications from whites. Citibank denied Latinos 3.88 times more frequently than whites. In both instances, this is worse than other lenders in this MSA. Great record, for the biggest bank in the United States.

     As to AIG, as readers of this Report may remember, ICP opposed AIG's acquisition of American General and it subprime lenders during the summer of 2001, including presenting evidence of American General's loans at interest rates up to forty percent.  The OTS granted ICP an "informal meeting," but then waived its formal meeting procedures. The OTS imposed a condition its AIG - American General approval: that AIG submit a new CRA Plan within ninety days of approval. The OTS told ICP that it would grant any request for a formal meeting on the Plan.

      ICP was not notified of the filing of the Plan, either by the OTS or by AIG. Stumbling across a newspaper notice at the deadline, ICP requested a copy of the Plan. It's an amazing thing: the largest insurance company in the United States, fresh from acquiring the third largest subprime lender, and its affiliated three-branch thrift, now proposes a mere $15 million CRA commitment, while applying to close one of the three acquired branches, and to sell the other two. AIG FSB now has $797 million in assets, but insists that it is still a "small bank" for CRA purposes, and will remain so until 2003. ICP has opposed the Plan; this, too, will be updated on this site. An aside: on December 7, the new Director of the OTS, James Gilleran, was sworn in. He may wish to consider the special treatment being accorded to certain thrifts: both the large conglomerates like AIG who argue that their thrifts are peripheral (and thus in essence exempt from a meaningful application of the CRA), and the largest thrifts, like Washington Mutual.

    Click here for an update on WaMu- Dime, including a description of the "formal meeting" that the Office of Thrift Supervision held on November 15. A sketch: ICP began the meeting by explaining the basis for its opposition, specifically focusing on Washington Mutual's subprime lending through Long Beach Mortgage Co. (which does not provide prime-priced loans to applicants with prime credit histories) and through Washington Mutual Finance Group (WMFG, which makes loans at interest rates up to 40%). ICP pointed out that WaMu had already acknowledged problems with the HMDA data it had filed in response to ICP's comments, and that ICP had more recently noticed that the data used in WaMu's submission was not even consistent with the public (and official) data released by the FFIEC. ICP concluded by asking nine question that are set forth in ICP's WaMu-Dime Watch, in our mid-week report of November 14.

    Next, the California Reinvestment Committee spoke, also on subprime, and also on community development lending, pointing out that WaMu holds the notes on several decrepit apartment complexes and nevertheless seeks CRA credit for these activities.

     Washington Mutual was then given 30 minutes for its presentation. The WaMu presenters claimed that WaMu is "universally recognized" as a leader in subprime lending, citing for this proposition a recent speech by the U.S. Treasury Department's Sheila Bair. WaMu stated that it will begin offering prime-priced loans at Long Beach -- in the first quarter of 2003 -- and that WMFG will soon begin "risk-based pricing." WaMu's outside counsel from Sidley & Austin said that the inconsistencies in HMDA data were "de minimus," and explained that while the FFIEC had released its final official data in July 2001, WaMu had not "repopulated" this data into its computer systems yet. WaMu was given an extension of its 30 minutes, to allow the general counsel of WMFG to complete his presentation, which included the statement that on November 9, WMFG had put in telephone calls to all of its state regulators, seeking letters of support for its practices and for the WaMu-Dime application. As of November 14, three such letters had been obtained (South Carolina, Mississippi and Texas).

    After a five minute break, ICP was given 15 minutes for rebuttal. ICP began by noting that WaMu had not responded to several of the questions it had raised (again, see below on this page for the list of nine questions). ICP expressed surprise that the fastest a thrift of WaMu's size could implement a basic reform like prime-priced loans to prime application was in 2003 -- that is, in 18 months. ICP said that maybe WaMu should re-apply to acquire Dime at that time: in the first quarter of 2003. CRC's rebuttal also expressed surprise at the 18 month delay, and asked what would be happening in the interim.

    In light of WaMu's statement that it is "universally recognized" as a leader, ICP questions whether the Treasury Department's Sheila Bair was or is aware that WaMu makes subprime loans at interest rates of 40%. ICP questioned the relevance of generic letters of support for WMFG from only three of the 26 states in which it operates. ICP also questioned why WaMu could not or did not input the official HMDA data into its computers, more than three months after this data was released by the FFIEC. ICP reiterated its opposition to WaMu's application, and its request for the portions of the application that WaMu is still seeking to withholding, in the face of ICP's FOIA request.

     During WaMu's final rebuttal time, it argued that any HMDA inaccuracies can be addressed confidentially, between it and the OTS. WaMu's outside counsel argued that the withheld exhibits had nothing to do with the application, or with the issues ICP is raising. Nevertheless, president officer Dimmick ruled that the comment period for both ICP and CRC will run for two weeks after the meeting, and that the comment period for ICP will run for 14 days from whenever the FOIA issues are resolved. WaMu interrupted, to again oppose this, accusing ICP of being persistent and even litigious around FOIA. ICP pointed out a Treasury Department / OCC regulation, providing for extended comment period when an applicant makes an erroneous or over-broad request for confidential treatment. Presiding officer Dimmick reiterated his decision -- the comment period for ICP will run for 14 days after the FOIA issues are resolved -- and then thanked the parties for their participation. The video conference ended.

    There are several questions now: how seriously will the OTS take the subprime lending and HMDA reporting of the largest thrift it regulates? Will WaMu continue to seek to withhold basic information in its application? ...

October 22, 2001

    At the October 16 hearing on the failure of subprime-lending Superior Bank, the Senate Banking Committee chairman hammered away at outgoing OTS Director Ellen Seidman, asking "why, more than two years after the collapse of First National Bank of Keystone in West Virginia, which was caused partly by the bank's concentration in subprime residual assets, the residual rule in particular had not been enacted yet." Surprisingly, the issue of predatory lending was not raised by any Committee member or witness. FDIC board member John Reich told the Committee that subprime lending "is how many banks satisfy their Community Reinvestment Act requirements."

    On October 10, the OTS announced the 14 CRA ratings it had awarded in September. All 14 were outstanding or satisfactory... On October 17, the OCC announced the 19 CRA ratings it had awarded in September: "Of the 19 evaluations made public this month, 2 were outstanding, 17 were satisfactory. None were needs to improve. None were substantial noncompliance." Can you say, grade inflation? Even, already-inflated grades being supplemented with standardless subprime loans?

     Case in point: Citizens Bank. In August, ICP and DCRAC challenged Citizens Bank's application to acquire Mellon's branches. In late September, Citizens spokeswoman was quoted in the Harrisburg, PA newspaper that Citizens would be submitting an amended response based on its 2000 lending. That has not been submitted. Citizens' earlier responses (which focused on lending data going back from 1999 all the way to 1995) had sought "confidential treatment" for its presentation about subprime lending. Now some (but not all) of that information has been released. Interestingly, the subprime connection is not limited to Greenwich Capital Markets. Citizens Mortgage Corporation -- the affiliate whose lending Citizens claimed makes up for Citizens Banks' disparities -- has a subprime lending program. The newly-released response vaguely described CMC's so-called "Credit Builder" division, which takes applicants and forwards their applications "to either an unrelated investor or unrelated lender where an origination decision is made... For details of this procedures please see the attached [still] Confidential Exhibit 3." The irony is that CMC reports these loans in its own name (that is, in its Home Mortgage Disclosure Act data). The response describes a scenario in which "the loan closes in CMC's name and subsequently is purchased by the investor." The response does not name the investors, nor make any disclosures about the investors' underwriting standards (or consumer protections). This casts all the more doubt on Citizens' initial defense to ICP's and DCRAC's challenge: that CMC's lending record is better than Citizens Banks' record. Yeah -- by including subprime loans decided on by unnamed investors...

     The Cleveland Plain Dealer of October 19 reports on the "fast tracking of an Ohio bill that would take away local government's ability to make consumer-lending laws... The bill was written with the help of the Ohio Consumer Finance Association, which represents so-called subprime lenders such as Household International, CitiFinancial, and Wells Fargo Corp." By week's end, the bill passed the Ohio House, 73-18. It now moves to the state's Senate....

      In other lobbying news, not directly related to CRA but so reflective of politics in Congress that we have to report it, J.P. Morgan Chase and Citigroup have both worked behind the scenes to oppose post-September 11 anti-money laundering legislation. U.S. News & World Report of October 22 reports that "according to congressional staffers, lobbyists for giant Citigroup had urged lawmakers to make an exception for shell banks affiliated with financial services companies... Citigroup has taken heat... for opening a $7.7 million account for a Cayman Islands shell bank whose assets were eventually seized in an illegal-drug investigation."

     The American Banker newspaper of October 17 reported that "J.P. Morgan Chase and the Texas bank executives pressured House leaders to water down" the anti-money laundering bill. What's the Texas connection, you ask? "These bankers, including some at J.P. Morgan Chase - which has large banking operations in the Lone Star State - are believed to have influence with House Majority Leader Richard Armey and Majority Whip Tom Delay, both of Texas." And, when the last round of anti-money laundering proposals were blocked in the Senate, prior to September 11, with Texas Senator Phil Gramm.

     But those seeking to sweep Morgan Chase's roll under the rug are not limited to the above-named. At an October 16 news conference on the money laundering legislation, a reporter asked the Senators which banks were opposing the bill. Sen. Chuck Schumer quickly answered that "every New York bank I have talked to is for this bill." Senator Levin quickly responded that "Chase is opposed to it." Then Sen. Sarbanes said, "I don't want to identify any institutions." Oh.

Meanwhile (back to CRA), Morgan Chase continues fleeing the retail market, this time online retail banking. On October 15, Morgan Chase sold 33,000 online accounts to E*Trade Bank. This institution, which limits its Community Reinvestment Act assessment area to Arlington County in Virginia, now has $8 billion in deposits from more than 400,000 customers...

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September 11, 2001... Click here for Yahoo's ongoing coverage and links -- which include a link to Inner City Press's report on just this topic.

October 1, 2001

    ICP continues to focus on September 11 aftermath, bank-related and otherwise. Click here to view ICP's Second Special Report on banking connections to the plane-bombings, and terrorism more generally.


September 24, 2001

      In the aftermath of the September 11 plane-bombings of the World Trade Center and the U.S. Pentagon, Inner City / Finance Watch has prepared a report on bank links to Al Qaeda and other state- and non-state terrorist groups. While initial press accounts centered around Barclays Bank in London, there are many more connections: ABN Amro (owner of LaSalle Bank in the U.S. Midwest) held deposits of Al Qaeda conspirators in India; Deutsche Bank (which bought New York's Bankers Trust in 1999) held millions for a now-incarcerated Pakistani intelligence chief); Fleet is reported to channel money to the Chechen jihad. At a lower level, the September 11 hijackers reportedly held accounts at SunTrust, Bank of America and Dime.

     It is the larger scale untraceable movement of money that will need to be acted on: the large banks with insufficient anti-money laundering safeguards (Citigroup chief among them); the network of offshore financial centers like Nauru and the Cayman Island (where Citi, Morgan Chase, and other major U.S.-based banks have and use subsidiaries which jealously protect the identify of depositors), etc.. The Federal Reserve, which has of late been rubber-stamping its approval on merger applications by banks with spotting anti-money laundering track records, will have to take this issue more seriously. Click here to view the whole report.

    Community reinvestment advocates have shown, and undoubtedly will continue to show, restraint -- that they take the events of September 11 seriously. We suggest that financial institutions do the same. In Inner City Press' daily coverage of the plane-bombing's aftermath from September 12 - 14 (to view, click here and scroll down), we noted several self-serving announcements by financial institutions. Here's simply one example: New York Community Bancorp blithely announced that its CEO would make a presentation at an investors' conference on Martha's Vineyard on September 20 -- no mention of the tragedy in the community that NYCB purportedly serves. Another New York-based bank, HSBC, told a reporter that it would be waiving fees -- then, the next day, called the reporter to explain that the fee-waived would be extremely limited, and to request that a clarification be published. We are compelled to note these things...

     Similarly, we noted that Rhode Island-based Citizens Bank, the afternoon after the bombing, chose to "spin" a local business reporter about a minor approval it received for one of its CRA-challenged applications to acquire Mellon's branches. The spinning, given the timing, was distasteful. The world can't, won't and shouldn't stop. Applications for regulatory approval, particularly for mergers proposed prior to September 11 (like Washington Mutual - Dime) will continue to be filed. Issues will be raised, but all with restraint, with an eye on larger issues.

    A post-September 11 task that is being under-reported is the need to inquire into how attacks like these are financed, how the money is moved. Banks with notably lax money laundering policies will be examined particularly closely. Sometimes, it's been a matter of direct solicitation: the London Observer of December 13, 1998, reported the visit to Afghanistan of Mark Warner, a director with Barclays Private Bank Ltd., to drum up business... In testimony in federal court in Manhattan in February 2001, Osama bin Laden's paymaster Jamal Ahmed Al-Fadl testified that al-Qaeda had various bank accounts, including with Barclays Bank. While Barclays now tells reporters that it is "fully aware of [its] legal obligations," the reports become more specific: the account was at the Barclays branch in Notting Hill, west on London. Regarding the three largest U.S.-based banks, see generally the Minority Staff of the U.S. Senate Permanent Subcommittee on Investigations, the Report on Correspondent Banking: A Gateway to Money Laundering, February 2001.  And, two stray Congressional notes:  Sen. Gramm threatened to filibuster the $40 billion disaster relief bill; and, some Texas Republicans are urging Sen. Gramm to resign, so that Rep. Henry Bonilla can be appointed to the seat and getting a running start for the 2002 elections.  The San Antonio Express-News (9/12) reports that "Gramm has said he will not step down early, but at least one congressional source said Tuesday he believes the Texas senator has changed his mind." We'll see.

    Relevant, perhaps by analogy, to the CRA crossroads we are at, in Europe the economic justice network Attac issued a press release condemning the plane- bombings "in the firmest possible terms, particularly because terrorism has always been used to suppress and suspend democratic freedoms."  Later in the week, ATTAC confirmed that it would not cancel its next planned protest, stating that "we understand the shock in the U.S.... But, in Europe and the rest of the world, we are not in a state of shock. Life goes on -- and we see no reason to change our analysis or our actions."

     In the alternately redlined or gouged low-income communities in the United States, is there a reason to change analysis or actions?   Fundamentally, no. But there is a wider picture, there is work to be done, assistance to be rendered, perspectives to be articulated. Here's one: the United States has an unprecedented level of personal and political freedom. The right to petition the government for redress of grievances. The First Amendment. Freedom of the press. (We might add: the Community Reinvestment Act, the fair lending laws, etc.). These, more than the reopening of the stock market, are what should be defended. There's a need for moral leadership, at the national, regional and neighborhood level. In light of the loss of life, the pervasive and reinforced sense of powerlessness and frailty, the urge to retaliate -- to defend -- is widely shared.  But if the response includes killing uninvolved civilians, how would it be qualitatively different than the September 11 plane bombing?

    We'll close with this view from the South Bronx, ten miles from the World Trade Center: a candlelight vigil through the neighborhood was held on September 14; the candles continue to burn in the park at 184th Street and Arthur Avenue.  Rest in peace.

    Community reinvestment groups, neighborhood-based organizations generally, are (micro-) social institutions, with a form of soap box. There's a need for moral leadership, including at the neighborhood level. Let us try to rise to the challenge, while remaining vigilant on the issues we have been, and will continue, working on...

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September 10, 2001

     This week: Washington Mutual's lending pledge includes subprime; Citigroup's August 30 memo was meant to "get out in front" of the North Carolina Attorney General's enforcement action, announced on September 6; and goodbye to Senator Phil Gramm.

      Washington Mutual issued a press release on September 5 announcing a $375 billion lending commitment in connection with its proposal to acquire Dime Savings Bank. It is certainly appropriate that Washington Mutual expand on the lending commitment it announced in 1998, given that since then WaMu has expanded into Texas (Bank United), has bought the mortgage operations of Fleet, PNC and of the subprime lender Long Beach, and now proposes to acquire Dime. But--

     ICP has made both Dime and WaMu aware of its concerns about WaMu's subprime lending (and to a lesser degree, Dime's subprime lending, though North American Mortgage Co.). Especially since WaMu would be counting its subprime loans toward the $375 billion commitment, it is imperative that sufficiently detailed consumer protection safeguards apply to WaMu's subprime lending.   ICP had encouraged WaMu to disclose what percentage of the $375 billion pledge would be subprime loans.   WaMu did not make any such disclosure in its press release.  Journalists asked;  WaMu gave various answers, including "not significant," and from 10 to 15% (subsequently reduced, by a spokesman, to seven percent). That is not... responsible disclosure.

     WaMu's "Responsible Lending Commitments," also released on September 5, are not sufficient. It is significant that Washington Mutual Finance Group and Long Beach (WaMu's two subprime units) have not been examined for consumer compliance by the Office of Thrift Supervision. Nevertheless, WaMu proposes to count these subsidiaries' loans toward its "Community Reinvestment" pledge. This is a policy issue that will have to be addressed...

     Last week, in reviewing Citigroup's August 30 dissemination of a purportedly internal memo on reforms to its subprime lending -- largely the de-certification of certain mortgage brokers and correspondents -- we mused that Citigroup was releasing this memo in an attempt to "spin" a more negative forthcoming story. Well, on September 6 the other shoe dropped. The North Carolina Attorney General announced that Citigroup will pay up to $20 million to reimburse customers gouged with single premium credit insurance. Various journalists informed ICP that Citigroup's spokeswoman Leah Johnson refused to answer their questions about this North Carolina fine, an approach decidedly different from Citigroup's willingness to brag out its internal memo the week previous.

    North Carolina is only one of over 40 states in which consumers were subjected to these practices; there is little rationale for similar refunds not being made or ordered in other states. Also, single premium credit insurance is only one of the predatory practices at CitiFinancial; many of the practices (including but not limited to absurdly high "loan discount" fees) continue today at CitiFinancial. So this is a developing story...

    The American Banker of September 10 quotes Citigroup SVP Pam Flaherty: "Are we perfect? No, but we're on track to keep all our commitments by the end of the year, and we continue to learn." As reported on ICP's CitiWatch, Ms. Flaherty asked that complaints about practices at CitiFinancial branches be transmitted to her -- but when she was asked about lifelong gag orders CitiFinancial has sought from ex-employees, prohibiting them from providing any derogatory information about any Citigroup employee or practice, she responded that these gag orders are "customary," and then stopped responding. So our question remains, about what exactly it is, that Citigroup is learning...

    On September 6, the president of the New York Fed, William McDonough, gave a speech in London, on the topic of "Connecting Finance with Communities." In his speech, Mr. McDonough implied that there is no more need for the Community Reinvestment Act, telling the audience that most bankers "say they would continue making these loans and investments even without regulation." This cast a different light on the New York Fed's purported attempts to get community groups' views on how the CRA regulation can be strengthened.

   Until next time, for or with more information, contact us.

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