Citigroup is to pay $70 million to settle allegations that it violated federal fair-lending laws and attempted to mislead bank examiners, says the Federal Reserve. A Fed spokesman said the fine was the largest ever imposed by the US central bank in a consumer law compliance case.
The settlement follows an official investigating into Citigroup’s internal procedures dating back to 2001, launched as one of the conditions for allowing the financial giant to purchase a Uniondale, New York, bank. The settlement requires Citigroup and its Baltimore subsidiary, CitiFinancial Credit Co., to pay restitution to some recipients of home mortgage and personal loans made in 2000 and 2001. The fine total may be reduced by up to $20 million, based on the amount of restitution made to borrowers, says the Fed. Citigroup did not formally concede or deny that the allegations were true.
This is the second time in less than two years that the giant bank has settled with regulators over accusations of embarrassing loan practices. In September 2002, Citigroup paid $215 million to resolve charges by the Federal Trade Commission that its Associates First Capital Corp. unit had packed home loans with unneeded optional insurance products between 1995 and 2000.
The Federal Reserve alleged that CitiFinancial violated regulations that prohibit a lender from requiring a co-signer when a loan applicant is sufficiently credit-worthy by himself. It said the push to require co-signers was made “in connection with attempts to increase joint insurance sales through an increased volume of co-applicant loans.” The Fed also alleged that CitiFinancial engaged in “unsafe and unsound” practices by making high-cost loans without taking into account borrowers’ ability to repay the loans. Also, the Fed accused CitiFinancial of “actions to mislead examiners in connection with their interviews of CitiFinancial employees.”
Restitution is to be made to borrowers who bought joint credit insurance in connection with co-applicant loans from CitiFinancial from January 2001 through December 2002. Also eligible for restitution are borrowers whose personal loans were refinanced to high-cost home equity loans in the three years ended Dec. 31, 2002, the Fed said.
Aside from the fine and restitution, the Fed also gave Citigroup a month to come up with a written plan to ensure CitiFinancial’s future compliance with consumer laws.