Predatory lending

New Crisis, The, May/Jun 2001 by Brown, C Stone

Allegations of fraud and deceptive practices have plagued The Associates for years, prompting a 1997 ABC Prime Time Live news investigation. Prime Time concluded that The Associates questionable practices seemed to be company policy. Phillip White, a former assistant manager for an Associates branch in Alabama, told Prime Time that there was always a designated "forger" in the office. White also alleged at least "two-dozen" instances of forgery in two Alabama offices. Ford Motor Corp, which owned Associates at the time, told Prime Time they investigated White's allegations and "found nothing."

The same cannot be said for the Federal Trade Commission (FTC), which filed a complaint in federal court on March 6 charging The Associates with "systemic and widespread abusive lending practices." (Last September, Citigroup, based in New York City, announced it would acquire The Associates for $31 billion from Ford Motor Corp; the deal became official in November 2000.) Citigroup and CitiFinancial Credit, their consumer lending division, are also named as defendants in the complaint.

"Based on our investigation we found that The Associates had engaged in a widespread pattern of what we would call predatory lending practices, including deceiving consumers about the terms of the fees. And convincing consumers to purchase credit insurance through deceptive means and a variety of other federal statutes," says Joel Winston of the FTC's Bureau of Consumer Protection. The FfC also charged The Associates with violations of other federal laws, including the Truth in Lending Act, Fair Credit Reporting Act and Equal Credit Opportunity Act.

"We've brought a number of cases over the last few years involving abuses in the subprime lending market, including predatory practices. But I think what makes this case stand out is the scope of the practices involved, Winston says. "It's one of the largest subprime lenders in the country, and it's now owned by Citigroup, which is one of the largest companies in the country."

Says Keith Anderson, spokesperson for CitiFinancial, "We regret that we have been unable to resolve the FTC claims without litigation."

Anderson insisted that CitFinancial has worked hard to address concerns that consumer groups have about Citigroup's acquisition of The Associates.

"From the time we announced our intent to acquire The Associates, we indicated our full commitment to resolve the concerns that have been raised about their business, we think we fulfilled that commitment," Anderson says.

"One of the issues that has been criticized is single premium credit insurance; we have developed a monthly pay credit insurance product so that you're financing the total cost of the insurance over time," he adds. In addition to an 800 number for resolving complaints, Anderson says, they have instituted a referral pilot program that rewards subprime borrowers with a prime rate if they meet prime credit criteria, which includes having good payment histories.

Many organizations are joining the fight against predatory lending. The NAACP is working with a law firm that is investigating whether The Associates discriminates against African American consumers by charging them higher interest rates for loans than other customers. In April, the AARP launched a national campaign against unscrupulous mortgage lenders. The effort is themed "They Didn't Tell Me I Could Lose My Home." The AARP initiative will "link advocacy on behalf of older borrowers with a major consumer education initiative" and be coordinated within individual states with law enforcement officials, attorneys general, consumer advocates and minority and community organizations.