Citigroup OKs $215M SettlementSep 19, 2002 | AP
Citigroup Inc. agreed to repay customers $215 million to settle federal charges that a company it acquired manipulated people into buying overpriced mortgages and credit insurance.
It is the largest Federal Trade Commission settlement involving consumer protection, the agency said Thursday. The agreement would allow about 2 million consumers to receive cash refunds or reduced loan balances, helping them to recover much of their losses, said FTC Chairman Timothy Muris.
The commission voted 5-0 Thursday to approve the agreement, which still needs approval from a federal court.
"These are positive steps in an industry that for too long has been plagued by deception and abuse," Muris said. "We will be looking to ensure that the law is obeyed."
By settling, Citigroup does not admit to breaking any law.
The company could not immediately be reached for comment Thursday. Citigroup had said previously that it already was taking steps to help those consumers.
A federal court in Atlanta still must approve the settlement, the FTC said.
The agreement also will not become final until a related settlement in a class action lawsuit in California is approved, the FTC said. Approval of that settlement, which would provide another $25 million to consumers, could take several months, the agency said.
In 2000, Citigroup bought Associates First Capital Corp., which got consumers to consolidate their debts into a single loan — usually a home equity loan — with the promise of lower monthly interest payments, according to a lawsuit filed last year by the FTC.
The loans, however, often came with substantial fees that made them even more expensive than the original debt.
When Associates was acquired by Citigroup, it was one of the nation's largest lenders to high-risk borrowers, the FTC said. Like other similar lenders, Associates charged interest rates much higher than those available to lower-risk consumers.
In its complaint, the FTC charged that Associates made borrowers unknowingly purchase credit insurance products by automatically including them in monthly loan payments.
The government complaint also said that at loan closings, the company rushed consumers through the process and discouraged them from removing the additional credit insurance, which in some cases added thousands of dollars to loan costs.
The FTC, citing Associates' public records, said the company earned more than $500 million from 1995 through 1999 through their credit insurance sales.
The complaint also charged that Associates used abusive tactics to collect their loans, like making harassing telephone calls. The company also violated federal regulations by failing to keep proper records and improperly using consumers' credit reports to do such things as solicit new customers, the complaint alleged.
The FTC settlement announced Thursday also requires Citigroup's consumer finances subsidiary to provide annual reports to the government detailing how it sells and markets credit insurance and similar products.
Consumers will receive notices in the mail in the next several weeks explaining how they can get refunds, the FTC said. Consumers who have already received refunds or have given up their claims in other settlements are not eligible.