Inner City Press' AIG - American General Watch
Note: Since American General's integration by AIG, this page has been superceded -- Click here for ICP's new, ongoing AIG Watch
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ICP has published a (double) book about the AIG-relevant topics of predatory lending, and corporate fraud - click here for sample chapters, here for a map, here for fast ordering and delivery, and here for other ordering information. CBS MarketWatch of April 23, 2004, says the the novel has "some very funny moments," and that the non-fiction mixes "global statistics and first-person accounts." The Washington Post of March 15, 2004, calls Predatory Bender: America in the Aughts "the first novel about predatory lending;" the London Times of April 15, 2004, "A Novel Approach," said it "has a cast of colorful characters." The Pittsburgh City Paper says the 100-page afterword makes the "indispensable point that predatory lending is now being aggressively exported to the rest of the globe." Click here for that review; click here to Search This Site For or with more information, contact us.
Last updated April 4, 2005
ICP / Fair Finance Watch has been concerned about AIG's insurance practices for some time. As reported in the New York Times of July 21, 2001, advocacy led to AIG discontinuing American General's abusive "single premium credit insurance" (in which customers were assessed interest on the premiums). But other predatory practices have continued. To seek action on these, ICP has for example obtained a copy of AIG's American General's Insurance Product Guide, which instructs employees on how to convince customers to accept insurance, by tying it "seamlessly" to the loan. The products are supposed to be separate, with no tying. ICP has now submitted to regulators the pertinent sections of AIG's internal Insurance Product Guide to the regulators; ICP has also for example raised that AIG still does business in Zimbabwe, despite the country being, for example, on the U.S.'s and other countries' human rights sanctions lists. For or with more information, contact us.
Update of April 4, 2005: This week it’s
logistic. On February 28, ICP Fair Finance Watch made a formal request for AIG’s (and
American General’s) 2004 mortgage lending data; the data by regulation must be
provided “by March 31 for a request received on or before March 1.” ICP’s
request was directed to the signer of AIG’s previous responses to ICP’s
regulatory comments. AIG waited the full month, then on March 31 provided its data on five
separate compact disks, one in unanalyzable PDF format, the others in a
“read-only” format that resists importing into analysis software. AIG knows
this; ICP has complained to AIG (re-requesting that the data be “provided in a single
.DAT file, allowing analysis of the entire conglomerate’s patterns at one time”)
and, having received no further response (or data) from AIG, now to the regulators as
well. Click here
Update of March 15, 2005: Too little, too late? The
ouster of Maurice “Hank” Greenberg, confirmed on a conference call today, does
not resolve the numerous issues which swirl around AIG, which also include questionable
subprime lending practices at AIG’s American General units, and standardless
international business. As simply one example,
which ICP's Human Rights Enforcement
project / Rights Force has raised directly to
AIG, it continues its business in Zimbabwe, see, e.g., www.aig.com/gateway/country/1/70/0/0/79/Zimbabwe.htm. We’ll have more on all this going forward.
Some previous reports:
Update of November 29, 2004: Beyond the $126 million SEC settlement last week,
now it’s reported that Hank Greenberg is “being looked at” for inflating
AIG’s stock price during the take-over of American General. Per the WSJ, the criminal
inquiry is premised on Greenberg having called the office of Richard Grasso, then the
before-the-fall chairman of the New York Stock Exchange, to ask him for help in propping
up AIG's share price, to keep AIG from having to issue more stock to pay for American
General. Though Grasso was out of the office that day, traders who worked for Goldman
Sachs unit Spear, Leeds & Kellogg ultimately bought up the AIG shares...
Update of October 25, 2004: Call it meltdown -- or a threat to go fully offshore. On October 21, AIG's Hank Greenberg reacted to the news that this company is the subject of a grand jury probe by complaining, "We do business all over the world and the place we are having the most problems is right here in the U.S. We are the same company that we always have been." Masters of account smoothing, and since buying American General, of predatory lending too...
Update of October 18, 2004: From last week’s insurance scandal
revelations, in the case where ACE increased its bid for casualty insurance for Fortune
Brands by $110,000 to $1.1 million, just to satisfy Marsh. Marsh "requested we
increase premium to be less competitive, so AIG does not [lose] the business," an ACE
exec wrote in an e-mail. As we’ve said,
predatory is not confined to AIG’s consumer finance business...
Update
of October 11, 2004: AIG said it was under investigation for certain
deals, "including three transactions" with PNC -- but failed to mention that the
investigations also covered five additional deals with two other insurers. BW quotes current and former law enforcement
sources say they're taking a tough stance with AIG because they believe it plays
"hide the ball" by allegedly resisting requests for documents, e-mails, and
other information from SEC and Justice staff. And when it's required to disclose
investigations, they add, AIG downplays their seriousness in public statements. Just like its
approach to AIG American General’s predatory lending...
From
the NYT of Oct. 7: “Mr. Ransom of Fox-Pitt, Kelton said he arranged a
conference call with other analysts who follow A.I.G. yesterday because its stock
'’was getting beaten up, and I thought this was grossly overdone.' In the call, Mr.
Ransom said of the dispute between the company and regulators: 'A.I.G. reacts to these
things depending on whether they think they have done something wrong. And I think in the
present case, they don't think they have done anything wrong.' Joe Norton, a spokesman for
A.I.G. confirmed that Mr. Greenberg spoke with Mr. Ransom and said he had no reason to
believe Mr. Greenberg had not been quoted accurately.”
ICP’s question: how does this comply with the
SEC’s Regulation Fair Disclosure?
Update of September 27, 2004: AIG disclosed last week that it has
received a Wells notice indicating that the SEC is considering a civil action against AIG
and one of its subsidiaries for their dealings with PNC. AIG said in a press release that
they "believe the proposed action would be unwarranted and will respond to the
staff." A spokesman for AIG declined to provide further comment, and a spokesman for
PNC would not comment. What transparency! AIG paid $10 million in
September a year ago to settle SEC charges that the insurer helped telephone distributor
Brightpoint Inc. hide losses with a fraudulent insurance policy....
Update of September 13, 2004: From
the mailbag:
Subj:
Question about predatory lending by American General
Date:
9/10/2004 11:23:35 PM Eastern Standard Time
From: [Name
withheld in this format]
To:
AIG-Watch [at] innercitypress.org
My mother has a loan from American General Financing
in North Idaho and it is classic predatory lending... We also have the insurance from them
with her 23% interest loan. In fact there are two and one has a $720.00 check with a
poorly forged signature. She didn't even know about it until last week when I made her get
copies of her loan with her signature on them. AG had only given her a few of her loan
papers and none with the check or stating that she had two insurance polices from them
until we demanded these copies. An attorney has agreed to look at her loan next week but
AG has told her they are going to take her home and her vehicle (used on the loan) by the
end of the month. Any advise or help you can offer will be a huge blessing. We are a
little lost in all
Keep us posted! For or with more information, contact us.
Update of August 23, 2004: From the mailbag:
Subj: American General Finance Insurance Problem
Date: 8/15/2004 10:54:15 PM Eastern Standard Time
From: [NAME WITHHELD IN THIS FORMAT]
To: AIG-Watch [at] innercitypress.org
Hello! I have had loans with American General Finance since 1998. My car had been the collateral. I was in severe financial straits due to a failing business, and I accepted three offers to refinance my loan (each adding at least $300 in fees alone to the amount of the loan, practice I understand is called "loan flipping"). I admit to lacking financial sophistication. However, before accepting the third and final refinancing I expressed concern that the amount of the loan might then exceed the value of the car, hence if I were in an accident and totaled my car the insurance would not cover it. I was assured at that time that the insurance would indeed cover the amount of the loan. I accepted this statement based on trust. In February 2003 my car was indeed totaled, and at that time my coverage was the insurance supplied by American General. It in fact did not cover the loan; in fact, the insurance only covered approximately $3200, leaving a balance of approximately $5800. Since I needed a car for my work, I had no choice but to buy a replacement car, and it became difficult to carry both payments. Now, I am being sued by American General for the balance of the loan at $5500... The contract I signed allows for damages not exceeding $5000, including attorneys fees and all costs, but they are suing me for $5500...
Raise it -- document it and raise it. And keep us posted. For or with more information, contact us.
Update of August 16, 2004: From the Financial Times of August 12, "Maurice Greenberg at insurer AIG, for example, joked that he had two jobs: working through the governance issues during the day and running the company at night." Yep -- off the books...
Update of July 26, 2004: Specifically on AIG’s export of subprime consumer finance, The Nation (Thailand) of July 19 reported that "AIG Finance (Thailand) is a consumer finance company majority-owned by AIG Consumer Finance, a subsidiary of American International Group Inc. The company concentrates on providing hire purchases, personal loans and promissory note services." Hey, that’s American General Finance’s business in the U.S...
Nothin’ but business: last week Hank Greenberg gave a rosy picture of AIG’s global profits and prospects -- including its exploitation of World Trade Organization rules -- and its political focus at home: "In Japan the improving economy has contributed to our growth, especially in the growing commercial lines business and personal accident operations. The UK, European and Australasian regions had excellent results. Latin America has had another good quarter, too. In China our landmark venture with PICC Property & Casualty to develop the market for accident and health products is up and running. Also, we expect by the end of 2004 to extend our general insurance operations to more cities in China as the market opens up in compliance with World Trade Organization rules." Greenberg-the-patriot also said: "Reforming the US tort system is more than an insurance industry issue. It is critical to the economy and the country. Necessary class-action reforms had significant support in Congress, and it is unfortunate that debate over the number of non-germane amendments attached to the bill led to what we hope is a temporary setback. Efforts are under way to reconcile these differences and the bill could be reintroduced at a later date. We will continue to work for its passage." Work and pay, that is. AIG’s political contribution usually pan out though, even to the extent of AIG being granted special rights during China’s entry into the WTO...
Greenberg also noted that a recent proposal in India's Parliament to allow foreign insurance companies to increase their ownership to 49% from 26%, which, if passed, would "present a significant opportunity for us to enhance our presence in this attractive market, where our life and general insurance joint ventures have had rapid growth throughout the country." For or with more information, contact us.
Update of July 19, 2004: AIG and power plants, from a (dense) July 13 press release: "AIG Global Investment Group (AIGGIG) announced today that Northern Star Generation, LLC (Northern Star) has acquired four power plants from El Paso Merchant Energy (EPME), a unit of El Paso Corp., for approximately $226.4 million and the assumption of approximately $39 million in consolidated non-recourse debt. Northern Star is owned equally by AIG Highstar Generation LLC... AIG Highstar Generation LLC is owned by AIG Highstar Capital II, L.P. (Highstar II) and other co-investors. Highstar II is a private equity fund sponsored by AIGGIG. AIG Financial Products Corp. (AIG-FP) provided the acquisition financing and worked closely with Northern Star in evaluating the projects and negotiating the acquisition terms. Additionally, in its role as exclusive restructuring agent, AIG-FP will use its expertise to restructure certain assets in an effort to optimize the return of the portfolio. The four power plants, located in Massachusetts, Pennsylvania, Florida and Nevada, are the first to be acquired of up to 25 power plants that Northern Star agreed to purchase from EPME for up to $746 million." AIG's environmental standards will, one would think, be closer scrutinized as time goes by.
Update of July 12, 2004: American International Group, Inc. (AIG) will report its second quarter 2004 earnings on Thursday, July 22, 2004. On that date, AIG Chairman Hank ("Just Hank") Greenberg will host a conference call, broadcast over the Internet, at 9:00 a.m. EDT....
Update of June 7, 2004: From a first-hand account of AIG's annual meeting, generously provided by an attendee: the business meeting was over in less than half an hour, followed by speeches by Hank Greenberg and six others, on significant growth opportunities in things like terror insurance, insuring companies doing business in Iraq, workplace violence insurance and SARS coverage. They trumpeted opportunities for class action reform, mourned the crumbling of a proposed asbestos settlement. American General's new markets to low income borrowers were heralded as a growth area. But without anti-predatory lending safeguards: the shareholders' resolution on the topic was opposed by management and roundly voted down. The Titanic lurches on, with no rudder but greed...
Update of June 1, 2004: From the prime minister of (troubled) Georgia, Zurab Zhvania: "I would simply remind journalists about the visit to Georgia by top US businessmen about a month ago. It was a group of about 12 very rich businessmen, super-millionaires, as they are sometimes referred to. I could name Mr (Maurice) Greenberg, president (chairman) of the world's number one insurance group, AIG. Since his visit to Tbilisi, I have met him in New York. He confirmed his desire to open a branch of his insurance group in Georgia. He is seriously interested in Georgia." Hey, Hank Greenberg and AIG are in Zimbabwe, too...
Update of May 24, 2004: AIG, the company that clung to an insider-heavy board of directors, and tried most recently to get a shareholders' resolution about its predatory lending knocked off the proxy (apparently using the argument that predatory lending is a part of AIG's "ordinary business") - anyway, now AIG's mausoleum king, Hammered Hank Greenberg, is speechifying against corporate transparency. Of the bipartisan Sarbanes-Oxley bill, Greenberg complained last week that "Some of us have two jobs - the regulatory burden during the day and running the company at night." He also promised (or threatened) that "We're on the hunt," Greenberg said at the company's annual shareholder meeting. "There will be continued consolidation in our industry, both domestic and foreign. We will not overlook that opportunity." Those deals must be done at midnight, since the entire day is spent complying with Sarbanes-Oxley...
Update of May 17, 2004: in the run-up to this week's AIG annual shareholders' meeting, at which a proposal is in the proxy statement that would require AIG's board of directors to "conduct a special executive compensation review to study ways of linking executive compensation to successfully addressing predatory lending practices." AIG tried to get the proposal kept out of the proxy, contesting it at the SEC (where AIG lost); now, AIG has urged a "no" vote, stating that "AIG’s subsidiaries, through their legal and compliance departments, have developed internal procedures and lending policies to ensure compliance with applicable laws both in the United States and abroad." ICP note: the "abroad" part is particularly laughable -- AIG lags even its peers inside the U.S., and has no safeguards beyond the U.S...
Update of May 3, 2004: in the run-up to AIG's annual meeting, reports resurfaced last week that AIG "insured Boston's Big Dig, a multibillion-dollar tunnel and highway that cut a path across the city. In the process, AIG pocketed $150 million in federal funds. When Sen. John McCain [R-Ariz.], chairman of the Senate Commerce, Science and Transportation Committee, moved for action against AIG, Kerry pleaded to protect the insurer and got McCain to call off punitive legislation. After which, our hero's Citizen Soldier Political Action Committee received $30,000 from AIG for his Senate campaign, and AIG executives contributed another $18,000 directly to Kerry's Senate and presidential campaigns. " Pay to play -- by a still-predatory lender...
Update of April 26, 2004: Last week, ICP attended and raised predatory lending issues at Citigroup's annual shareholders' meeting (click here to view ICP's report). Similar question are on the agenda for AIG's annual meeting, including in the form of a shareholders' resolution that would link, at least loosely, addressing (and stopping!) American General Finance's predatory lending with executive compensation. Hank Greenberg raked in $29.7 million. According to Business Week, " Though Greenberg doesn't participate in AIG's supplementary bonus program, the board gave him a $ 6.5 million bonus anyway." There are many definitions of predatory... We will have more on this. For a CBS MarketWatch article on these (predatory lending) issues, click here.
Update of April 19, 2004: the buzzword corporate governance is an afterthought at AIG. SEC filings earlier this month show that AIG in the past two years has given the IRS $3.5 million more than they would otherwise have received because it had not put Hammered Hank Greenberg's bonus plan to a vote of the shareholders. Tax regulations provide that a company's pay to its chief executive over the first Dollars 1m is not tax-deductible unless it meets certain performance-related criteria and is pre-approved by shareholders. Since 2001, Hank's been off-road: the $5 million bonus Greenberg grabbed in 2002 and 2003's $6.5 million were not tax-deductible. AIG declined to comment on why it had not put a new plan up for shareholder approval until this year...
Update of April 12, 2004: AIG is a predatory lender that flies below the radar. A recent example is the lack of reporting on AIG's American General's robbing of consumers in New Jersey. All too rare, the NJ Department of Banking and Insurance took action, and ahs ordered at least $1.2 million in restitution by AIG to more than 700 NJ consumers. The Department of Banking and Insurance explicitly found that the homeowners had been overcharged on their home equity loans from AIG's American General -- they were charged points significantly in excess of the amount indicated on their pre-disclosure forms. Such bait-and-switch is called predatory lending, and its among the things (along with obfuscating advertisements) that AIG knows...
Update of March 29, 2004: Among AIG's predatory lending storefronts is an office of American General Finance in a strip mall in New York's Broome County, at 1901-1905 Vestal Parkway East... Meanwhile, AIG EVP Jay Wintrob will shoot the breeze at UBS on March 29 at 6:00 p.m. - it'll be here -- event.streamx.us/event/default.asp?event=UBS20040330
Update of March 22, 2004: The second string, unplugged: AIG vice chair Martin J. Sullivan and CFO Howard I. Smith will be talkin' trash at the Banc of America Securities' "Financial Services: Unscripted" Conference on Tuesday, March 23, 2004 at 8 a.m., www.veracast.com/webcasts/bas/financial-services-2004/ id09101178.cfm
Update of March 15, 2004: AIG and tax avoidance (a/k/a tax evasion), from the intrepid Rob Wells of DJNS: "Senate Finance Chairman Charles Grassley, R-Iowa, and the panel's top Democrat, Sen. Max Baucus, D-Mont., alerted leaders on the Senate Budget and Appropriations committees about the potential financial damage of leasing tax shelters.... Grassley and Baucus released a list of investors, lawyers, lenders and appraisers involved in the leasing transactions with transit systems, a virtual "Who's Who" in the corporate financing community. The list names investors such as First Union Commercial Corp., a unit of Wachovia Corp. (WB), and lenders such as AIG Financial Products Corp. (AIG). . An AIG spokesman had no immediate comment." Yeah, right...
Update of March 8, 2004: old AIG -- and we mean, old -- has scheduled its annual shareholders' meeting for May 19, 2004. Along with questions about AIG's predatory "growing global consumer finance business," last week AIG bragged that its "Private Client Group" will "provide policyholders employing domestic staff with access to background investigations" - by Kroll, no less. According to AIG's press release, "Policyholders have the ability to screen all of their U.S.-based employees, such as their nanny, housekeeper, driver, gardener, chef, or home health worker" -- including checking for "complete employment history and professional licensure." Yep - those forged gardening licenses are a real problem...
Update of March 1, 2004: AIG and privatization: last week AIG announced it will invest close to $10 million in Hungarian shipping firm Volan Tefu Rt, whose chairman says "That presents us with great growth opportunities...we're looking mostly at privatization deals in the Ukraine, Poland, the Czech Republic, Slovakia and Slovenia." AIG will have two seats on the board...
Update of February 23, 2004: Hammered Hank the subprime lender will speak at the Merrill Lynch Insurance Investor Conference on Monday, February 23, 2004 at 9:05 a.m. ; AIG "note[s] that Mr. Greenberg's remarks may contain forward-looking statements." We'll see...
Update of February 16, 2004: AIG begrudgingly committed to drop single premium insurance in connection with the subprime lending business it was acquiring, in the face of Inner City Press / Fair Finance Watch's protests, from American General in 2001. The commitment, made in letters to regulators, was reported in the New York Times (July 21, 2001), and in the American Banker of July 23, 2001: "AmGen to End Single-Premium Insurance.. to counter criticism from Inner City Press."
Now, Inner City Press has obtained a letter, from AIG's "Merit Life Insurance Company" of Evansville, Indiana (also the headquarters of American General Finance) stating, "Enclosed is your new single premium accidental death and dismemberment insurance policy." The letter is cc-ed to Judith A. Henley, 8079 Kingston Pike, Knoxville, Tennessee. Ms. Henley works at a branch of AIG's American General Finance; ICP has also obtained Ms.Henley's (and other American General Finance employees') "Merit Life Commission Statement." [Ms. Henley is Employee Number 2086663; her AGF branch colleagues are Chris S. Outland, Steven F. Kopman, and Martha B. Watkins.] These commission statements reflect that, for AIG, American General Finance storefronts are a selling place for single premium insurance -- in a sense, that loans are an excuse for selling high-cost insurance. For shame...
Update of February 9, 2004: Following-up, from the mail bag:
Subj: American General Finance
Date: 2/2/04 9:16:45 PM Eastern Standard Time
From: [Name withheld upon request]
To: AIG-Watch [at] innercitypress.org
1. In response to the former employee email you received, she can probably forget about the employee handbook. They are well guarded.
2. While working for AGF, I was given a "Needs Improvement" on my review because my INSURANCE SALES did not measure up to what was expected of me. I was
actually told by a VP that I would be an excellent witness for AGF in the Insurance suit going on because my figured proved I didn't believe in the products.
3. When former customers requested copies of documents, we were told to inform them there was a charge for copies, and that was only IF we still had their file. A lot of times, we were told to tell them files were kept off site.
4. As far as leaving AGF, it was quit or be committed. I have never worked for a company that so consistently told you that you were terrible at your job.
Keep that mail coming! Meanwhile, in the litigation seeking to overturn Toledo, Ohio's anti-predatory lending ordinance, an executive of American General, which has three Toledo offices, said that the firm will stop making mortgage loans in Toledo if the law is upheld. "American General -- will face potential criminal liability for having, in good faith, interpreted in a manner different than Toledo's officials certain vague terms in the Toledo ordinance such as 'unconscionable' and 'materially detrimental,'" said Michael McClellan, senior operations director at AIG....
Update of February 2, 2004: From the mailbag:
Subj: aig/american general /ins/predatory lending
Date: 1/29/04 9:10:34 PM Eastern Standard Time
To: AIG-Watch [at] innercitypress.org
i was informed of your site about a week ago, while looking for an employee handbook from american general finance. i am amazed at the extensive research you have done on predatory lending and my former company american general finance. for your information :
american general loves to harass employees into selling credit insurance products, my district manager sent out an email ridiculing me for my non productive insurance sales, this was 30 min after being served with papers for the class action law suit that has taken over this state(ms). as far as predatory lending, too much weight is given in the local branches, most managers do not have the knowledge to make the kind of loans they make which leaves agf wide open for mistakes. they are a powerful company and once they have decided they don't need you any more, you better get ready. i am in the process of filing suit
Keep us posted!
Update of January 26, 2004: Hank and hawala: AIG announced last week that it will offer policies of $10,000 of accidental death and dismemberment coverage to U.S.-based remittance customers of the National Bank of Pakistan. The press spin recites that more than 700,000 Pakistani nationals live and work in the United States. Together, they control about $250 billion of assets; individuals remit $300 to $500 per month abroad. Those who remit funds for distribution overseas through the National Bank of Pakistan will automatically get the insurance at no additional cost; the bank is to pay the premiums. Coverage is to be given for 12 months from the first remittance, and only one transaction is required to become eligible. The coverage is available to anyone using the bank's branches in New York or Washington. Hank (Greenberg) and hawala...
Update of January 20, 2004: AIG, buyer of power plants. On January 16, El Paso Corp. announced an agreement to sell its interests in the Front Range Power Plant near Fountain and 24 other U.S. plants for $ 920 million to units of AIG. Front Range is the second-largest plant in the deal after a plant in Florida. Most of the other 23 plants are located in California, Florida and Pennsylvania. Most of the plants, including Front Range, burn natural gas to generate electricity.... AIG Global's Northern Star Generation LLC will acquire the power plants for its private equity funds, affiliated companies and third-party clients. AIG Financial Products Corp. will fund the acquisition.
Update of January 12, 2004: AIG the predator on the move: now it plans to launch a credit card in China. The Financial Times (Jan. 8) says this "highlights AIG's desire to diversify away from its core insurance operations into higher-margin personal finance businesses." Yep -- predatory lending in the U.S. and abroad...
Update of January 5, 2004: according to Best, ten different units of AIG, the world's largest insurer, held Parmalat notes with a total book value of $122.1 million, prior to the company receiving bankruptcy protection from the Italian government Dec. 28. Great due diligence...
Update of December 29, 2003: the AIG African Infrastructure Fund just acquired a 36.4% stake in Moroccan fertilizer importer Gharaf Corporation. From Moroccan fertilizer to predatory lending (though American General), AIG does it all...
Update of December 22, 2003: Last week AIG put out a press release about appointing a manager for its relationship with PICC Property and Casualty Co Ltd. Hammered Hank is quoted that he "is well suited to help consumers throughout China benefit from AIG's vast experience and skill as the world leader in A&H and related products. These products will be marketed through PICC's unrivaled distribution network, which serves approximately 70 pct of the country's general insurance market with over 128,000 agents and sales representatives throughout China." AIG - and its predatory lender American General -- running wild throughout China: now there's a thought...
Update of December 15, 2003: AIG's chairman, we'll call him Hammered Hank Greenberg, was in the U.K. last week, holding forth. He denounced asbestos claimants, and said that the insurance industry "is viewed like the man in the circus who has a pail and shovel behind the elephant, trying to clean up the mess... That's what we're expected to do many times, whether we should be responsible or not." Well. If Hammered Hank is holding the shovel and bucket, where have all his lobbyists gotten to?
Update of December 8, 2003: news last week that Don Kanak's been named co-chief operating officer and vice chairman of AIG clouds again the succession picture - just what Hank Greenberg, the eternal one, wants. Many presumed that Kanak's fellow co-COO Martin Sullivan, was standing first in line. "That remains our belief, though this latest move does add more uncertainty to that potential outcome," equity analysts with Morgan Stanley opined last week...
Update of December 1, 2003: from the federal district count in Philadelphia comes the decision In re Mintze, reciting that Ethel M. Mintze, 58, a North Philadelphia homemaker, challenged a $44,700 mortgage issue by American General Consumer Discount Co. in her bankruptcy petition. When Mintze was looking to finance a $3,800 heater installation in 2000, she was referred to American General, according to the opinion. Mintze alleged that the financing company required she borrow $44,700 as a condition of financing the heating project - a loan that would refinance her current mortgage and consolidate her credit card debt at a 13.44 percent annual percentage rate, the opinion said. But there was an arbitration provision of the contract, and when Mintze filed to undo the loan under the federal Truth In Lending Act, alleging predatory lending, American General asked to remove the case from bankruptcy court and moved to compel arbitration, U.S. District Judge Mary A. McLaughlin wrote. The bankruptcy court refused to dismiss the case and did not enforce the arbitration provision... More on this soon. For now out point is: AIG's American General remains a predatory lender...
Update of November 24, 2003: The American Banker of Nov. 18 recited that Hank Greenberg "in recent years... , has said it had no desire to buy a bank. 'We market through banks all the time without buying a bank,' he said last year at a Banc of America Securities conference." Nope -- they didn't need a bank (they own a savings bank) -- only a predatory lending finance company...
Update of November 17, 2003: AIG continues putting moves on China. On Nov. 14, SinoCast reported that Tang Yunxiang, president of PICC Property and Casualty Company Limited, said that the company signed the strategic investment agreement with AIG to strengthen the cooperation and develop the insurance products. Tang said that the company aimed to establish an international insurance company in 10-15 years... Greenberg, chairman and CEO of AIG, said that China's insurance market was of great potential. The two companies will develop jointly the products of the accident insurance and the short-term health insurance." Why not AIG's other specialty -- predatory lending? On that, state-by-state action is addressed in this new ICP map -- click here to view and use.
Update of November 10, 2003: AIG, one of the ultimately opaque, power mad and secretive companies, paradoxically runs television ads, at least in the United States, make it seem like a house of mirth. "AIG -- we know money," a woman's voice says. There's one mirroring a football game, "Go AIG!" The image from the ad has nothing to do with the company's culture, or M.O....
Update of November 3, 2003: Hank Greenberg's strong-arming of Dick Grasso is still reverberating, with the SEC now digging into the issue. Hank in his arrogance is proud -- "anything for the share price," is what he says -- and he means anything...
Update of October 27, 2003: AIG's earnings announcement on Oct. 23 stated, in an endless quote from Hank Greenberg, that "[b]Both U.S. and foreign consumer finance business had a very good quarter. Operating income is up 20.5 percent to $173.6 million. American General Finance, Inc. (AGF) had an outstanding quarter. The quality of the loan portfolio is good and demand is strong. AGF is opening new branches. This business is achieving an excellent return on equity. Our international consumer finance business also is achieving good results. Performance was substantially better in Hong Kong, in line with the up-tick in Hong Kong's economy... AIG has a large number of promising growth initiatives underway around the world. In addition to the purchase of GE's Japan life and U.S. personal auto insurance businesses, AIG has entered into cooperative agreements in Russia to identify investment opportunities, improve homeowners insurance and provide financing alternatives for Russian home buyers. We also entered into a cooperative agreement with the People's Insurance Company of China (PICC) that will enable AIG to market its accident and health products through the PICC's 4,300 branch offices. We will provide training to PICC's agents and expect to sell an extended portfolio of products that we do not currently distribute through our life branches or property-casualty operations in China." Home lending in Russia? If it's like AIG's American General in the U.S., it's... predatory lending in Russia. We'll see.
Update of October 20, 2003: As we've been musing about the recent revelations about Hank Greenberg's arms-twisting of Grasso, and AIG's facilitation of PNC's accounting fraud, we'd forgotten an interesting overview of AIG in The Economist of March 2, 2002, reporting among other things that AIG's " board is stuffed with the great and good who have represented America abroad: Barber Conable, former congressman and president of the World Bank, Carla Hills, a former trade representative, and Richard Holbrooke, recently United Nations ambassador." Why have not of these people been called to account for AIG's Enron-like role with PNC, for example? Or for AIG's American General's ongoing predatory practices? Hmm...
Update of October 13, 2003: Hank Greenberg's piece in Friday's FT attempted to put a public policy mask on Greenberg's strong-arming of Dick Grasso, which the WSJ uncovered. AIG seeks to dominate behind the scenes, and only comes public when it gets flushed out. So -- flush 'em out... Another question we've begun asking: how is it that AIG has received so much less scrutiny for its facilitation-of-accounting-fraud (for example, with PNC) than even Citigroup and Chase? This is among the issues ICP / Fair Finance Watch has raised this week to the Federal Reserve and OCC, on PNC's applications to acquire United National Bancorp. But, separately, it is an AIG question...
Update of October 6, 2003: From the mail bag, inside AIG:
Subj: AIG
Date: 10/2/03 2:42:10 PM Eastern Daylight Time
From: [ ]
To: AIGwatch [at] innercitypress.org
Perhaps you should look into the fact that AIG Claim Services, Inc. P&C Division has laid off hundreds of employees in an attempt to "streamline" its operations or so it says thanks to Stevel Iller and Chuck Shader. The remaining operations are being staffed by a bunch of trainees because they cannot find qualified candidates or so they say. Most likely its just another cost cutting measure. If you can hire a trainee for $25k a year, it certainly less than hiring a qualified person for $45-50k. Obviously at this point they have no concern about their "customers" who have paid thousands of dollars for their premiums. The bottom line is how much AIG can put in its pockets is all that counts. They have done virtually nothing to assist soon to be unemployed personnel. Their Human Resource Dept. is ineffective and has provided no concrete information regarding some key issues on this layoff. They are clearly attempting to screw as many people as possible. And no one in the media has ever reported on the fact that one Jericho NY employee committed suicide after receiving the layoff news. Notice AIG kept that one hush hush. Nor did AIG offer any counseling to its employees after this tragic suicide. It is believed that other AIG claims divisions will soon have the same fate and fall to the axe. Some day the mighty giant will topple.......I say keep your eyes on AIG I am sure more will come to light after the recent current events.
Kinda speaks for itself. Here's also hoping that the WSJ's Oct. 3 story about AIG's Hank Greenberg pressing Grasso to make specialist SLK buy more of AIG's stock is acted on, by John Reed (right...), Donaldson and the SEC, or even the NYS AG. AIG is among the most abusive of corporations, from community issues and predatory insurance to the stock markets and beyond. And they generally frighten-off inquiries before they even begin. It's time for that to end...
Update of September 29, 2003: ICP raised the issue of AIG's settlement of fraud charges with the SEC; here's the Pennsylvania Insurance Department's (PID's) response:
"The Department thanks you for bringing the post-acquisition AIG settlement with the SEC to its attention. However, at this time, the Department does not believe that the information in your letter provides sufficient basis to re-open its consideration of the AIG/GE acquisition, particularly since the settlement with the SEC in no way admits any liability on the part of AIG. Of course, any such decision would require exercise of the Department's judgment and discretion. As made clear by Department Counsel Caboot's August 25, 2003, correspondence, the Department would be pleased to provide Inner City Press... with access to any and all applications filed by AIG in the future."
Yeah -- AIG settled fraud charges just for the heck of it.
Update of September 15, 2003: ah, AIG. We've just put in the following, to state insurance regulators:
...this concerns American International Group, Inc. ("AIG"), its recent (September 12) guilty plea to fraud charges, and the Department's recent processing of AIG's applications to acquire control of the above-captioned GE companies (the "GE PA Insurers"). ICP submitted timely opposition to those applications. On August 25, the Department faxed ICP a copy of a response by AIG (AIG explicitly refused to itself provide ICP with a copy of its purported response, stating among other things that it was too busy). ICP immediately prepared a reply, which it faxed to the Department on August 26. ICP was then informed that the Commissioner had approved AIG's applications on August 26 -- one day after providing ICP with a copy of AIG's purported response, and before considering ICP's immediately reply to AIG's response. The Commissioner's order asserts that AIG meets all the standards set forth in Pennsylvania's version of NAIC's Model Insurance Holding Company Systems Act (the "Statute").
Well, on September 12 it was announced that AIG had pled guilty to rare fraud charges brought by the SEC. How is THAT consistent with the Statute? Perhaps what AIG meant, in its response's reference to being busy, was that it was busy engaging in, or negotiating a guilty plea to charges of, fraud. Question: did AIG inform the Department of its late-stage plea negotiations with the SEC? If not, particularly given that AIG's application was timely opposed, might that failure to disclose itself be fraudulent or otherwise problematic? And if so, the Commissioner's August 26 approval order is misleading, and ill-serves consumers...
For or with more information, contact us.
Update of September 8, 2003: a search of recent federal campaign contributions for "Maurice Greenberg" reveals seven contributions: Missourians for Kit Bond (2), Chris Dodd, Carper for Senate, Bush-Cheney, Judd Gregg and Mark Foley. A search for AIG general counsel Ernest Patrikis reveals five contributions: Missourians for Kit Bond, Chris Dodd, Carper for Senate, Republican National Committee and "Team Sununu"...
Update of September 1, 2003: Let's talk about a regulatory process that's far less than meaningful, and about why AIG and its American General subsidiary face insufficient scrutiny. On August 18, within the comment period of the Pennsylvania Insurance Department on the AIG-GE insurance deal, ICP submitted detailed comments about AIG's insurance sales practices. On August 25, the Pennsylvania Insurance Department faxed ICP a "response" by AIG, to which ICP on August 26 replied thus:
ICP's contention, which is also documented by the Insurance Product Guide which ICP submitted into the record, is that the employees of AIG American General are being trained to hard-sell credit insurance, to convince individuals who say they don't want and/or can't afford the product to nevertheless accept it. To that we can add that employees of AIG American General are told, under the heading "Why Sell Insurance?" that "[e]ach AGF branch benefits from the sale of insurance through increased profitability. Typically, forty percent (40%) of net written premiums are reflected on the PLR." ICP contends that this high percentage, and the way that AIG compensates and "incents" AIG American General employees, is virtually a "worst practice," and harms consumers... AIG's second response states vaguely that "in certain circumstances, American General Finance ('AGF') does foreclose on personal property collateral after customer default." But an obvious question is: does AIG American General only offer (that is, hard-sell) personal property insurance on property regarding which it would and does file a UCC-1, and would foreclose? The Department should ask the question, and AIG should answer.
AIG's final point is entirely evasive. ICP directed the Department to a recent news account of the administration placing Zimbabwe on a sanctions / blacklist based on human rights concerns. ICP then asserted -- and AIG does not deny -- that AIG continues to do business in Zimbabwe. Our question is not only "how is that legal and/or moral," but also how it is consistent (or not) with the integrity and other factors which the Department must consider under the Insurance Holding Company Systems statute.
AIG's August 21 letter states that its "General Counsel has previously offered to meet with [ICP] to discuss [its] concerns with AIG's business -- which offer has remained open since 2001 -- yet [ICP] has refused to take AIG up on this offer."
AIG's reference is apparently to a telephone conversation on August 8, 2001, returning a call from AIG's general counsel. Immediately after the brief conversation, AIG's general counsel wrote to the New York Banking Department, urging that Department to approve American General-related applications which ICP had opposed, including based on the telephone call. ICP inferred that the only purpose of AIG's general counsel's call was to immediately characterize it to regulators as somehow militating for approval of AIG's acquisition proposal.
Then the Pennsylvania Insurance Department said that on August 26 -- a week after the expiration of the comment period, and one day after it faxed ICP a copy of AIG's "response," the Department approved the transaction. The Order includes:
17 During the Comment Period, the Department received one comment from an interested person who opposed approval of the application on the basis of alleged improprieties by AIG.
18. AIG responded to the comment.
19. The Department fully considered the comment and AIG's' [sic] response.
On August 29 AIG announced that it was "consummated." And yet -- the issues will be pursued..
[ICP/FFW Comment to Japan; similar clearly-timely comment filed with PA Insurance Dep't]
August 17-18, 2003
Dear Commissioners and others:
On behalf of the U.S.-based non-profit Inner City Press/Community on the Move and its members and affiliates, and the Fair Finance Watch (collectively, "ICP"), this is a formal comment on the pending applications of the American International Group, Inc. ("AIG") to acquire GE's insurance business in Japan. Additionally, as set forth below, this Comment addressed not only AIG's predatory insurance practices, but also GE's predatory lending practices, which should be considered in connection with GE's applications to acquire GE Co. Ltd. from Promise Co. Ltd. See below. ICP is requesting that the agencies receiving this Comment (collectively referred to as the "FSA") conduct an inquiry into the issues raised in this timely comment, hold a public hearing, and, on the current record, deny the applications.
First, this comment should be considered timely. AIG announced this GE-Japan proposal simultaneously with a proposal to acquire control, in the U.S., of GE Property & Casualty Insurance Company, GE Casualty Insurance Company, GE Auto & Home Assurance Company and GE Indemnity Insurance Company (the "GE PA Insurers"). The Pennsylvania Insurance Department has a comment period on the proposal that runs at least through August 18, 2003. This comment is timely.
ICP is concerned that AIG, the applicant here, harms consumers including through its misleading sales of less-than-beneficial credit insurance and other forms of insurance. In 2001, AIG acquired American General, a conglomerate involved in insurance and, through American General Finance ("AGF"), in subprime consumer finance and credit insurance in connection therewith. ICP raised certain issues; AIG made a single commitment (regarding single premium credit insurance, see N.Y. Times of July 21, 2001, at Page C3, and see attached); but under AIG's ownership, American General has continued harming consumers -- including beyond the United States, on information and belief in Japan. See, e.g., AIG's April 24, 2003, press release announcing its first quarter earnings, and referring to its "growing" non-U.S. consumer finance business. While, after a previous round of advocacy, AIG announced it would drop single premium credit insurance - the scope of this commitment is not clear -- it does not seem to apply to this "growing" non-U.S. business. We ask the FSA to inquire into this, and for AIG to explain this. In terms of the misleading and abusive AIG / American General sales tactics described further below in this Comment and in the exhibits hereto, note that of GE Edison Life Insurance Co. six thousand employees, fully five thousand are engaged in sales.
First, however, for the record, ICP contends that this acquisition would be anticompetitive, now and in the future. Combining AIG Star Life (which in 2001 acquired Chiyoda Mutual Life Insurance Company) and American Life Insurance Co. (Alico) with GE Edison Life, AIG would "be at or near the top" of the market, according to Best's Review of August 1, 2003 (which also reports that this proposal would foreseeably lead to other, related acquisition moves by AIG -- which must be considered in this proceeding). [FN: Also to be considered in any legitimate competitive analysis is the consolidating structure of the industry: for example, the delayed but still proposed combination of Asahi Mutual Life Insurance Co. with Tokio Marine & Fire Insurance Co. Ltd. and Nichido Fire & Marine Insurance Co. Ltd.]
On the consumer protection / predatory lending and insurance issues, attached hereto as an example are pages from an American General Insurance Product Guide. Under the heading "Understanding Insurance Sales," the Guide begins,
"AGF has a full menu of products... Insurance shouldn't be an afterthought - it should be included as a seamless process with the loan... The benefits of both the loan and insurance should mold into one product...".
First, note that this tying of credit insurance to a loan (subprime loans are what AGF offers) is one of the anti-consumer practices most complained of. The next page shows that AIG's American General offers these "Payment Protection Products" in over 40 states -- including Pennsylvania -- and in Puerto Rico and the Virgin Islands. The same is true of "Collateral Protection Products" and "Financial Security Products," and of the "Non-Insurance Product... Home & Auto."
Next are pages describing these products. "Credit Personal Property Insurance," it is stated, "protects the customer and the lender by paying to replace or repair insured collateral used to secure an account;" it is "financed through AGF" and is "included in the amount financed."
ICP has found that personal property insurance, which is offered not only by AIG's American General but also by other subprime lenders such as CitiFinancial, is often an abusive product. An individual is search of a loan applied to AIG's AGF, and is asked to provide a list of personal property. Then, as described in this AGF Guide itself, insurance is presented as "a seamless process with the loan... The benefits of both the loan and insurance should mold into one product." But your should ask AIG: does its AGF file liens / UCC documents (or Japanese equivalent) for the personal property on which it is selling insurance? That is, does AGF has a serious intention to foreclose on such personal property -- or is the property list only sought in order to sell insurance? ICP has inquired closely into this with regard to CitiFinancial, including asking at Citigroup's annual meeting, which led to this in the Wall Street Journal:
When it makes a personal loan, CitiFinancial often asks the holders of personal loans to provide collateral. In some cases, according to CitiFinancial documents filed by Inner City Press, that collateral includes fishing lures and tackle boxes, record albums, tents, sleeping bags and lanterns -- items that CitiFinancial would almost certainly never bother to collect in the event of a borrower's default. Yet insurance is sold on the collateral in case it is damaged or lost.
"It's predatory: This insurance product has no rationale, because it's not credible that someone would want to have their loan paid with their leaf-blower," said Matthew Lee, executive director of the Fair Finance Watch project at Inner City Press. "Citigroup has not lived up to the subprime lending reforms it announced after acquiring Associates."
Citigroup officials concede seizing such collateral would be more hassle than it's worth. But they say providing such collateral on loans has a purpose -- "to make the borrower more responsible for paying the loan back," says Ajay Banga, Citigroup's business head of consumer lending. (Paul Beckett, "Efforts by Citigroup to Reform Subprime Unit Raise Questions," Wall Street Journal, July 19, 2002).
After inquiry, Citigroup's CitiFinancial acknowledged that while it asked its customers "what kind of stuff do you have?" in order to list the items as collateral and sell insurance on them, it has no intention of foreclosing on the collateral. ICP has been informed that the property lists are similarly compiled at AIG's American General, something into which the FSA should inquire and act on in this proceeding.
Within this AIG's AGF's Guide is a presentation of "The Four Step Selling Process" for credit insurance. It is a roadmap in how to deceive the customer and cram insurance into the transaction -- seamlessly. It schools the employee in asking "probing questions... open and closed," and in asking leading questions, such as "Do you agree?" It emphasizes: "When the customers agree with your recommendation that our product satisfies their need, it is time to stop selling and close the sale." Emphasis in original.
There is a five-page presentation on "Managing Customer Objections." It instructs that "in reality, when objections start, the selling begins." It suggests quoting the cost of coverage in terms of "BLANK cents a day" -- a misleading way of presenting the cost of credit insurance.
The FSA should know, for example, that the U.S. Federal Reserve has asked both Citigroup and Wells Fargo detailed questions about their credit insurance practices (lists of the Federal Reserve's questions are available on request). Both Citigroup and Wells Fargo are bank / financial holding companies; AIG is not, and has not applied to the U.S. Federal Reserve for this GE proposal. This should not meant that similar insurance-related questions are not asked of AIG. The attached, timely submitted in opposition to and in requesting a hearing on these AIG - GE applications, is more than enough to trigger inquiries by the FSA. On the current record, we contend that AIG's applications could not legitimately be approved.
Additionally, as an adverse managerial factor that the FSA must, we contend, consider, it is significant that AIG blithely continues its business in Zimbabwe, despite the widely-reported violations of human rights in that country. Zimbabwe, in fact, is on the U.S. (and other countries') human rights black-lists (see, e.g., Agence France Presse of July 19, 2003 , as well as being panned in detail by Amnesty International, see, e.g. the (London) Daily Telegram of August 16, 2003). As evidence that, despite this, AIG standlardlessly continued and continues doing business there, see AIG's web site, at www.aigcorporate.com (reflecting AIG Zimbabwe at Westgate House East, Harare, Tel. 263-4-332-530); and see, e.g., Salon.com of October 30, 1998, reporting on proposed
amendment to the Senate foreign operations appropriations bill in 1996 that would have dramatically reduced U.S. aid for Zimbabwe, over a dispute between the Zimbabwe government and an AIG subsidiary. Both the State Department and the Agency for International Development (AID) opposed D'Amato's move. The tale is described in confidential AIG documents.
In the spring of 1996, AIG executives were concerned that its subsidiary in Zimbabwe, Unity Insurance Co., would be forced to sell a majority of its stake to local owners if it wanted to continue to do business there. AIG, which is one of the top 100 political party contributors in the United States, turned to its influential friends in Washington to press the Zimbabwean government to drop its plan
AIG also exerts political pressure we contend is inappropriate in, for recent example, Malaysia:
AIG is attempting to rebuff the Malaysian government's demands that it should locally incorporate its two Malaysian operations, insurance industry officials have confirmed. The giant US insurer, which controls 15% of Malaysia's life and general insurance market, recently asked Malaysia's finance ministry for a further extension to an exemption last granted in 1998... AIG is the only foreign insurer that has not complied with a 1989 Malaysian law requiring foreign-owned banks and insurance concerns to incorporate locally... Ironically, the potential spat comes at a time when AIG is undertaking a significant restructuring of all its operations in Southeast Asia. It is part of wider moves to restructure reporting lines for all its business in Asia. In broad terms, the group has decided to bring all its China-related business in mainland China as well as Hong Kong and Taiwan under one umbrella. (Insurance Day of August 18, 2003).
For all of these reasons, ICP hereby timely opposes and requests a hearing on AIG's GE applications. As noted above, in connection with GE's proposal to acquire GC Co. Ltd from Promise Co. Ltd, consider GE's lack of human rights, social and environmental standards. ICP has found troubling evidence raising a presumption of impermissible discrimination at GE Capital: ICP has searched the FFIEC.gov database of 2001 HMDA data, and finds therein that, in the Washington DC MSA in 2001, GE Capital Mortgage (NJ), for mortgage refinance loans, reported a 40% denial rate for applications from African Americans, and a 100% approval rate for white applicants. Below in this Comment, ICP cites applicable human rights laws that require your agency to consider GE Capital's disparate lending, including in Japan. ICP has also become aware that GE Capital has been targeting at consumers, offering credit lines at up to 22.99%. The product is called GE FlexPLUS; it has been described by GE as a "pilot program." See, e.g., "GE Plans to Move Into a Risky Area: World of Unsecured Personal Loans," by Kathryn Kranhold, Wall Street Journal, May 9, 2003, Pg. A3: "GE is targeting consumers whose credit history is known partly because they have taken out installment loans through GE's retail partners... GE declined to reveal which retailers would be involved [but] has been challenged by the Inner City Press/Fair Finance Watch, a New York consumer activist group. The group's executive director... contends that GE should undergo more scrutiny as it moves into a broader array of consumer-lending products. "
Several GE activities raise issues under the managerial resources and other factors that your agency must consider. As simply one example, see, e.g., Oil Daily of January 25, 1999, reporting on human rights abuses at the partially GE-owned Dabhol power plant in India -- the plant "'employs security forces who routinely beat and harass people demonstrating peacefully against the power plant'... General Electric Corp. (GE), Bechtel Corp. and the Maharashtra State Electricity Board are the other interest owners in the project, located south of Bombay on India's west coast... more than 30 police attacks against protesters," etc.. There are ongoing questions regarding GE's environmental standards, in New York and elsewhere -- including Japan.
In support of this request for a hearing and for other appropriate actions by the FSA, the above should be more than enough. While it should not be needed, consider that the Universal Declaration of Human Rights prohibits, in its Article 2, discrimination (or "distinction") by race, color, sex, language, political or other opinion, national or social origin, property, birth or other status; Article 7 requires "equal protection of the law." [Remainder of human rights argument omitted]. On the current record, AIG's and GE's applications to the FSA should not be approved.
If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.
Respectfully submitted,
Matthew R. Lee, Esq.
Executive Director
NOTE: This page will be updated, when we receive the information we've requested from the agencies, and AIG's and GE's response(s). For or with more information, contact us.
* * *
Sample earlier reports:
Update of May 19, 2003: AIG is still, according to its web site, doing business in Zimbabwe. In fact, AIG is offering "political risk" insurance there. We don't call AIG "the company without standards" -- subprime lending or human rights standards -- for nothing...
Update of September 23, 2002: Last week, First Tennessee announced the sale of $207 million in loans in its First Horizon Money Center subprime consumer loan business to American General Finance for $7 million. As part of the deal American General takes over the leases on most of the division's 30 offices. Of the very few press accounts, even fewer mentioned that American General is owned by AIG. We'll add: AIG's American General is still notorious for refusing to accept pay-offs on its subprime mortgage loans, and keeping its liens in place as a way to "retain" customers... This has been raised to AIG, without satisfaction; the issue will rise again, stay tuned. For or with more information, contact us.
Update of February 25, 2002: 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: chairman of consumer finance Joel Epstein, AIG FSB president Pierce, and "outside CRA counsel" Warren Traiger. 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 attempted to tear into ICP. Among the words he used were "shameless," "flaunt," "egregious" and "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 notes 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. These involve evidence that an insurance company now owned by AIG wrote policies on slaves. AIG was particularly adamant that this issue is "irrelevant," and that ICP's raising of it is egregious and shameless.
USA Today of February 21, 2002, reported in a front-page article that "Last August, insurance giant AIG, founded 54 years after the Civil War, bought another insurer, American General. With the purchase came U.S. Life Insurance, which American General had acquired in 1997. In going through U.S. Life's archives last fall, AIG discovered that the unit had insured slaves in its early years."
The reality is that the issue was raised in American General earlier than that, but American General never responded. When ICP raised it, in proceedings before state insurance regulators in August 2001, AIG responded that it was irrelevant, and attacked ICP for raising it. Most recently AIG has asked that documentation of the issue be "stricken" from the record, and the OTS has agreed to keep the exhibits confidential. Whether that makes any sense, particularly following USA Today's February 21, 2002 public report, is open to question.
The above summary is prepared without benefit to the transcript of the formal meeting, which should become available next week. Here's ICP's letter to the OTS, responding to AIG's post-Formal Meeting submission:
Dear Mr. Albanese, Mr. Rosenberg, Mr. Steffy, et al.:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this letter and the attachments hereto are for inclusion in the record on the above-captioned matter.
With all of the provisos set forth in our previously timely correspondence, we appreciated the Office of Thrift Supervision's ("OTS's") February 20, 2002, Formal Meeting. We have submitted a FOIA and fee waiver request for a copy of the transcript, and will submit an errata sheet, if necessary, after receipt of the transcript. We note AIG's February 22, 2002, Letter regarding the offering of subprime consumer finance loans through the web page promoting AIG FSB (www.aigdirect.com/aigbank/aigbank_index.cfm). AIG argues that its post-Formal Meeting letter should be made part of the record, since "[t]he Bank was not prepared to discuss the web page exhibit at the Formal Meeting because ICP failed to provide a copy of the exhibit in advance of the meeting." But an entity, particularly a thrift holding company, should be presumed to be aware of the offerings on its own web pages, in this case, the offering of subprime consumer loan products upon which ICP extensively commented.
AIG now states that "[a]t our specific request, to further distinguish between the products offered by the Bank and its affiliates, aigdirect.com users will now receive a prompt informing them when they leave the Bank section of the aigdirect.com site." This does not change ICP's argument, that the subprime consumer lending of AIG FSB's affiliate, still offered as a click-through on the site promoting AIG FSB, is relevant and must be addressed in this proceeding. We have noted that in the WaMu - Dime proceeding, no argument was made that the lending of WaMu's subprime lending affiliates was not relevant, and that in the OTS' Lehman Brothers - Delaware Savings Bank proceeding, the OTS requested and obtained a commitment from Lehman Brothers dealing with its thrift's affiliates' dealings with other, non-affiliated subprime lenders. AIG's tortured legal arguments reflect badly on its compliance culture. We also note that AIG has not even purported to respond to the sample loan documents ICP submitted, nor to the "dragnet clause" issue raised before the Formal Meeting, and further discussed thereat.
AIG states that it "recently filed notice that it intends to develop a transactional website through [sic] the Bank currently expects to allow customers to, among other things, submit loan applications, pay bills and view check images." Given the issues that have arisen, ICP asks for a copy of AIG's notice, and for the opportunity to comment thereon.
While still not having the transcript, ICP notes that AIG's three speakers did not even purport to address the serious issues, timely raised by ICP, currently surrounding AIG as thrift holding company. The AIG speakers were dismissive of these issues. However, Bloomberg News of February 20, 2002, 4:19 p.m., reported that
The Securities and Exchange Commission has widened its investigation of PNC Financial Services Group's accounting, sending subpoenas to the company's auditor, Ernst & Young, and a company partner, American International Group Inc.... PNC has been reducing the bad loans on its books by selling them to investors over the past year. It joined with AIG last year to set up three companies designed to buy its loans and sell them over time. Ernst & Young provided assistance on the formation of the companies. "My understanding is that the SEC is looking at AIG's role in bringing this concept to PNC, PNC's revision of published earnings, and the nature of the off-balance-sheet subsidiaries to which the loans were transferred," said Ernst & Young spokesman Larry Parnell. New York-based Ernst & Young received $2.9 million for auditing PNC's books and $16.2 million for consulting and other services in 2000, according to a filing with the SEC. The firm also acted as an accounting adviser to AIG as the financial services company drew up plans for PNC's subsidiary companies.... New York-based AIG also received an SEC subpoena, said AIG spokesman Joe Norton, who declined further comment. --Emphasis added.
ICP maintains that a acknowledged SEC investigation into the thrift holding company is relevant to the thrift's "business plan."
AIG was even more dismissive of another issue raised by ICP, seeking thereon the "striking" of ICP's exhibits. For the record, USA Today of February 21, 2002, reported in a front-page article that "Last August, insurance giant AIG, founded 54 years after the Civil War, bought another insurer, American General. With the purchase came U.S. Life Insurance, which American General had acquired in 1997. In going through U.S. Life's archives last fall, AIG discovered that the unit had insured slaves in its early years." Emphasis added; article attached for inclusion in the record. The exhibits that ICP timely submitted put the above-emphasized in a different context: the issue had been previously raised to American General's headquarters in Texas. If AIG did not discover it in due diligence (which took place prior to August 2001 -- by then, the OTS had already approved the transaction, after waiving its formal meeting rules -- it is a relevant issue on AIG's managerial resources (statutory factor). ICP raised the issue in August 2001, which resulted in much vituperation and threats from AIG. Now AIG states that it itself discovered the issue in August 2001. Which is it?
AIG's CRA 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 notes that AIG has refused to provide documentation about its employee-base, lending to which will be AIG FSB's real estate lending 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.
Among other things at the Formal Meeting, the chairman of AIG Consumer Finance Group stated that the OTS 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. Records regarding that meeting would have been responsive to ICP's first FOIA request in this matter, and should be provided now. 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. ICP urges the OTS to direct AIG to cease and desist from any further closing or selling of branches while this contested proceeding continues. AIG's outside CRA counsel described ICP alternately as "shameless" and "egregious," and stated that ICP has an exaggerated sense of its own importance. This last apparently referred to ICP placing more weight on OTS precedents from proceedings in which ICP participated (e.g., Travelers Bank & Trust and Lehman Brothers FSB) than on proceedings in which neither ICP nor apparently any other community organization participated (e.g., El Dorado and Raymond James). But the agencies' implementation of CRA makes clear that proceedings in which a community organization has raised a substantive comment are given closer scrutiny. For example, the FRB delegates decision-making on most applications unless a substantive comment is received (or the proposal exceeds HHI safe harbors). In a current OTS proceeding, NetBank had requested and apparently obtained "Expedited Processing" until a substantive comment was received by the OTS. For these reasons, ICP disputes AIG's outside CRA counsel's characterizations, and notes his refusal to address the Travelers Bank & Trust (nationwide LMI lending commitment) and Lehman FSB (anti-predatory lending commitment) precedents timely cited by ICP.
AIG makes much of the fact that the SunAmerica assets were not subject to CRA prior to AIG's acquisition of them. But they ARE subject to CRA now, whether they are called a separate division of the thrift or not. For an institution's assets to increase by 3000%, and its CRA plan to increase by, at most, 100%, is laughable, as ICP initially put it, and as the director of the Delaware Community Reinvestment Action Council (DCRAC) stated at the Formal Meeting.
ICP maintains that AIG's plan -- material portions of which are still being impermissibly withheld from ICP -- is inconsistent with CRA, and is, on the current record, inconsistent with the fair lending laws. The other regulatory issues timely raised by ICP further militate for the rejection of AIG's proposed plan(s), and for other appropriate regulatory (enforcement) actions.
On the current record, AIG's plans must be rejected, reformulated, and resubmitted. A new comment period, and a Formal Meeting, on a credible CRA plan that is timely made available, are required.
For or with more information, contact us.
Update of February 18, 2002: On February 6, the OTS stated that the Formal Meeting on AIG's post-American General business and CRA plan would be held on February 20, and directed ICP and AIG to provide exhibits, etc., by February 15. But AIG and the OTS were still withholding the most basic information about AIG's business plan. So ICP on February 15 wrote to the OTS:
Dear Mr. Rosenberg, et al.:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this responds to Regional Director Albanese's February 6, 2002, Letter regarding the above captioned matter, which stated that the formal meeting that ICP timely requested will be held on February 20, and that certain information should be provided by February 15.
As ICP has raised to the OTS in writing and by telephone, ICP is concerned that a single formal meeting held while AIG and the OTS continue to withhold most substantive information from AIG's January 18 clarification of its plans will be less than useful, will prejudice ICP's rights to contest AIG's plans, and will not comply with the spirit or letter of the OTS' 2001 AIG - American General approval.
On November 23, 2001, ICP requested documents regarding, and submitted an initial comment on, AIG's Applications to modify its business plan and establish an agency office. This followed AIG's applications in mid-2001 to acquire American General, which the OTS approved on the condition that AIG modify its business plan, and not oppose requests for a formal meeting on the revised business plan. The OTS asked AIG for supplemental information, and directed AIG to send ICP all portions not exempt from FOIA.
AIG sent ICP a copy of its January 18, 2002, Letter that is substantially, and ICP contends absurdly, redacted. Simply as examples, on page 2 of the Letter AIG states that "the Bank's marketing focus is [REDACTED]... [M]arketing the Bank's products to [REDACTED] will be a focus of the Bank in 2002." Over 80% of page 3 of the AIG Letter is redacted. On page 4, the Letter states that "Given the Bank's nationwide lending strategy, [remainder of paragraph REDACTED]. The entirety of page 5 is redacted. All but three lines of page 6 is redacted. On page 6, the Letter states "[a]s part of its strategy to meet the credit needs of individuals throughout its market, the Bank [REDACTED]. On page 7, AIG redacts its thrift's "assets... at 12/31/00." There redactions are not consistent with FOIA, nor with the OTS' commitment, in the AIG - American General Order, to allow public comment on AIG's revised business plan.
On January 28, 2002, ICP contested these redactions in a letter to the OTS in Washington, cc-ed to the OTS Northeast Region. ICP's fax to the Northeast Region stated that it was imperative that the OTS rule on the redactions, and provide the improperly redacted information to ICP, prior to the formal meeting.
On February 6, Regional Director Albanese set the formal meeting for February 20. ICP contacted OTS staff raising concerns about this timing, and inquiring again regarding AIG's almost entirely redacted January 18 submission. ICP understands that OTS staff relayed these concerns to OTS FOIA staff, and ICP was told that it would be contacted in this regard.
As of this writing late on February 14, ICP has not received any of the improperly redacted information. ICP is being asked to acquiesce to the one and only (and required) formal meeting on this Application being held while ICP does not have basic information about AIG's plan. ICP has contested the withholding of information, including CRA-relevant information, from the Business Plan. But the condition in which ICP has been provided with AIG's January 18 letter borders on the absurd. The Letter is attached hereto.
It is important for the OTS to contrast these redactions to another CRA-relevant submission made by AIG's counsel, Goodwin Proctor, to the Federal Reserve Board ("FRB") on behalf of another client, Royal Bank of Scotland / Citizens Bank. FOIA is a federal law that applies equally to the OTS as to the FRB. In the FRB proceeding, AIG's counsel saw fit, at the FRB's demand, to unredact information regarding how Citizens originates subprime loans, and what percentage of its loans are subprime. This is the type of information that Goodwin Proctor is now redacting, presumably at AIG's demand. But the law is the law; there is no basis for the OTS to be enforcing and applying FOIA so differently than the FRB. And if the OTS releases the mis-redacted portions of AIG's January 18 submission (and of the Business Plan) after the formal meeting, ICP rights will have been prejudiced.
Upon receiving Regional Director Albanese's February 6 letter, ICP nearly immediately contacted OTS staff with precisely this concern. ICP has awaited an answer, but none has arrived. In this posture, ICP does not believe that the one and only formal meeting on this application should be held on February 20. The information about AIG's plan should be released beforehand.
...Similarly, incorporated herein by reference are the full records in the 2001 AIG - American General proceeding, including American General loan documents showing loans at interest rates over 30%, and in this proceeding. We have also been provided with information regarding American General's (now AIG's) use of a so-called "dragnet clause" in subprime consumer finance loans, whereby customers are forced to "agree" that, once they take a home-secured loan from AG/AIG, all subsequent loans can be rolled into the mortgage. ICP has been informed, for example, of an American General / AIG office in Tennessee which resisted issuing a pay-off letter on an AG/AIG mortgage unless the borrower's seemingly unsecured (also subprime) consumer finance loans were paid off as well. ICP is endeavoring to obtain the underlying documents, and reserves its right to introduce such documents into evidence in this proceeding. [FN: Under the applicable statutory factors, issues that have arisen, post-Enron, regarding AIG's transactions with PNC, for example, should also be considered and discussed. See, e.g., Bergen Record of January 31, 2002: "PNC on Tuesday said the Fed forced it to reduce 2001 earnings by $155 million because transactions involving the partnerships -- in which a swaps unit of AIG, AIG Financial Products, participated -- weren't accounted for properly... 'Of course we're not happy with the level of disclosure,' said Michael Lewis, an analyst at UBS Warburg... 'AIG is like an English muffin: with a lot of nooks and crannies. It's not a transparent company.' Investors, analysts, and regulators are scrutinizing many firms balance sheets, fearing that some may be hiding debt or using questionable accounting"]. On this (and in light of AIG's seemingly rejected attempt to limit the scope of the proceeding and of the formal meeting), we remind the OTS that at the above-referenced November 15, 2001 Formal Meeting (on Washington Mutual - Dime), the discussion centered about the subprime lending of Washington Mutual's thrift's affiliates' subprime lending -- documents to that effect, including the transcript of that OTS Formal Meeting, are incorporated herein by reference, as precedent.
ICP wanted and requested a formal meeting on AIG's application to acquire American General and its problematic (from ICP's point of view) subprime lending. The OTS "waived" its formal meeting regulations and issued the above-recited conditional approval. ICP wants and has requested a meaningful formal meeting on AIG's modified Business and CRA Plans. But it is not meaningful, while AIG is being allowed to withhold from ICP basic information about the Plan(s). ICP has demonstrated that AIG's counsel has applied an entirely different standard of redacting, in another recent proceeding before another Federal financial regulatory agency. ICP intuits that AIG wishes for the formal meeting to be held as quickly as possible, while the information is still being withheld from ICP. This should not be countenanced; ICP will not acquiesce to this; the OTS should take the actions requested above (to release of the improperly withheld portions of AIG's January 18 CRA-related letter, and of AIG's business plan), and should then (re-) schedule the required formal meeting.
At 5 p.m. on February 15, the OTS faxed ICP a letter asking it to confirm its participation on February 20, and stating that if ICP did not so confirm by 3 p.m. on February 19, the Formal Meeting (which the OTS committed to its in AIG - American General approval order, after "waiving" its formal meeting rules) would be "cancelled" and not re-scheduled. ICP was preparing its response. But after close of business on February 15, the OTS/DC faxed ICP a less redacted version of AIG's January 18 letter. This reveals that AIG's focus in 2002 will be marketing and lending to its own employees. Here is ICP's February 18-19 letter to the OTS:
Dear Mr. Barnes, Mr. Rosenberg, et al.:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this responds to Regional Deputy Director Barnes' February 15, 2002, 5:00 p.m. Letter regarding the above captioned matter, which stated that "[a]mong other things [ICP's February 15] letter requests the OTS to reschedule the Formal Meeting...". The OTS' February 15 Letter makes no mention of the basis of ICP's request: that the Business and CRA Plan on which the meeting is purportedly being held has been significantly modified, but the details of the modification have been withheld from ICP. The Letter implies that ICP waited until February 15 to raise its concerns, but that is not correct.
ICP quickly contested the redactions to AIG's January 18, 2002, Letter (we note that the "revised business plan" referred to on page 2 of that letter has been withheld from ICP in its entirety). Prior to Regional Director Albanese's February 6 letter, ICP stated clearly to the OTS that this information should be released, or at a minimum ICP's FOIA request / appeal ruled on, prior to the formal meeting. Unlike other OTS proceedings, including the West Region's WaMu-Dime proceeding in late 2001, ICP was never asked for a list of days on which it could appears at the Formal Meeting. A month has gone by since AIG's absurd redaction of its January 18 letter, and still ICP had not received a single additional piece of information about the revised business plan as of close of business on February 15. The OTS' February 15 letter states that if ICP does not today confirm that it will appear on February 20, the Formal Meeting will be cancelled.
It is clear to ICP that the OTS it treating AIG and AIG FSB differently that it treats other thrifts and thrift holding companies. In mid-2001, the OTS unprecedentedly "waived" its Formal Meeting rules while simultaneously approving AIG's applications to acquire American General, regarding which ICP has raised substantial questions regarding allegedly predatory lending. In waiving its Formal Meeting rules as to AIG, the OTS stated that public comment would be allowed, and a request for a Formal Meeting would be granted, on AIG's revised Business and CRA Plan.
Beyond the unprecedented 2001 "waiver" of Formal Meeting rules, the OTS has applied a different standard of information availability as to AIG FSB's revised Business and CRA Plan. Also, as noted above, when the OTS West Region set up a Formal Meeting on WaMu-Dime, it asked ICP what timing would work; that was not done here, either. When these issues are squarely raised to the OTS -- as ICP did in contesting the redactions to AIG's January 18 letter, in questioning the timing set forth in Regional Director Albanese's February 6 letter, first by phone, then in writing, there has been no meaningful response nor explanation. The February 15 response is, in essence, if ICP does not agree to acquiesce to the single Formal Meeting being held on February 20, the Meeting will be cancelled and not rescheduled. No response was provided in the OTS' February 15 Letter regarding the appropriateness of AIG's extensive redactions from and withholding from its January 18 letter.
After close of business on February 15 -- after 7 p.m., in fact -- the OTS/DC faxed to ICP's office a less redacted version of AIG's January 18 Letter. While ICP continues to disagree with several of the redactions, we are glad to have certain additional information, now unredacted. The information that AIG and the OTS withheld until one business day prior to the one and only Formal Meeting reveals inter alia that "employee-marketing programs will be the primary focus of our real estate lending activities in 2002" (Letter at 2-3). That is to say, AIG's thrift proposes to focus on lending to its own employees. This was not disclosed during the AIG - American General proceeding, nor in the initial Business Plan as provided to ICP. This is a major change, and requires a new comment period, and, we contend, a re-scheduled or additional Formal Meeting.
We have also noted certain differences between the January 18 letter as provided to us by AIG, and as provided after close of business on February 15. The differences go beyond the redactions: lines of text begin and end at different points on the page. See, e.g, page 1, para. 1: the version provided by AIG was longer. The same is true of the first paragraph responding to OTS Question 1, on page 2. We are concerned that by the differences between the two letters, and ask that this be addressed....
For or with more information, contact us.
Update of February 11, 2002: 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... Developing...
Update of January 28, 2002: An update on AIG, its savings bank and the subprime lending business it acquired along with American General in 2001 is required at this time. On November 23, 2001, ICP commented on, and requested documents regarding, AIG's Applications to modify its business plan and establish an agency office. This followed AIG's applications in mid-2001 to acquire American General, which the OTS approved on the condition that AIG modify its business plan, and not oppose requests for a formal meeting on the revised business plan. (See below in this Report). The OTS has indicated to ICP that its request for a formal meeting will be granted (as it must be, under the OTS's AIG - American General Order). The OTS has asked AIG for supplemental information, and directed AIG to send ICP all portions not exempt from FOIA.
AIG has sent ICP a copy of its January 22, 2002, Letter that is substantially, and ICP contends absurdly, redacted. Simply as examples, on page 2 of the Letter AIG states that "the Bank's marketing focus is [REDACTED]... [M]arketing the Bank's products to [REDACTED] will be a focus of the Bank in 2002." Over 80% of page 3 of the AIG Letter is redacted. On page 4, the Letter states that "Given the Bank's nationwide lending strategy, [remainder of paragraph REDACTED]. The entirety of page 5 is redacted. All but three lines of page 6 is redacted. On page 6, the Letter states "[a]s part of its strategy to meet the credit needs of individuals throughout its market, the Bank [REDACTED]. On page 7, AIG redacts its thrift's "assets... at 12/31/00." These redactions are not consistent with FOIA, nor with the OTS' commitment, in the AIG - American General Order, to allow public comment on AIG's revised business plan.
AIG, after providing this absurdly redacted Letter to ICP, has submitted an equally absurd "Proposed Agenda" for the formal meeting, purporting to limit issues in a way not done at any previous OTS formal meeting ICP has attended, for example the OTS's WaMu - Dime formal meeting on November 15, 2001. In any event, the formal meeting should not and cannot legitimately be held until the erroneously redacted portions of AIG's January 22, 2002, Letter are provided to ICP. ICP will then comment, including on AIG's "Proposed Agenda." And this will be updated.
Update of December 24, 2001: On December 21, AIG's Hank Greenberg appeared on public television's "Charlie Rose Show," primarily to promote his proposal that the federal government step in to help AIG and other large insurers -- but mostly AIG. Greenberg stated that AIG is in 140 countries -- "we open markets," he said -- and, as to when he will retired, stated that "the board [of directors] determines succession." AIG has over $500 billion in assets.
Meanwhile, AIG has submitted a Community Reinvestment Act plan to the Office of Thrift Supervision. Under this plan, AIG is projecting a mere $30 million in community reinvestment over the next three years. As explained in more detailed below on this page, AIG in 2001 bought SunAmerica's and American General's savings banks. American General has previously made a CRA commitment much larger than $30 million. But AIG now proposes to close American General's Utah branch, and to sell its California branches. American General's CRA commitment... simply disappears.
ICP commented against AIG's CRA plan; on December 21, AIG's outside counsel at Goodwin Procter LLP submitted a response, which it cc-ed to AIG's general counsel, and to yet another lawyer AIG's has brought on board, presumably for CRA expertise. This expertise appears to consist of listing inapplicable precedents concerning other stealth savings banks, such as that of Raymond James Bank, FSB, El Dorado Savings Bank, "Merrill Lynch Bank USA, and Travelers Bank & Trust, FSB (owned by Citigroup). AIG notes that it "serves LMI individuals outside its CRA assessment area." The example given is that AIG Bank's "private label credit cards, a prime lending product, are distributed through a network of furniture, appliance, electronics, and home improvement merchants."
AIG then opposes providing ICP with any more information, claiming that ICP wants to "rummage through [the] bank's internal documents while conducting an inquisition on all of the bank's business practices."
AIG goes on to argue that the OTS should not and cannot, either at the formal meeting or apparently in any other way, consider the subprime lending that AIG acquired along with American General. Just to cover its bases, AIG claims that the OTS did consider this subprime lending, in approving AIG's acquisition of American General on July 31, 2001 (after the OTS waived its formal meeting regulations, but conditioned approval on granting requests for meetings on AIG's CRA plan). The facts remain, including that this subprime lending unit makes loans at interest rates up to 40%....
Update of September 10, 2001: AIG, which while applying to acquire American General downplayed any layoffs that would ensue, last week announced 1,500 layoffs. American General's CEO Robert Devlin, who was slated to become AIG's Vice Chairman, has departed. This is called hard-ball. As has been AIG's strong-arming of Hyundai Securities and the Korean government, to lower an already-agreed upon price. AIG won that fight on September 9; earlier in the week, AIG announced that its and the U.S. Trade Representative's pressure on China has resulted in a continued special deal for AIG in China: AIG says it will not be required to reduce ownership of any of its 100%-owned operations, and will remain the only foreign insurance company in China allowed 100% ownership. One wonders why AIG has not yet joined Nike, McDonalds and other companies as acknowledged poster-children of the corporate domination of the globalization process. Perhaps it's that insurance is not as in-your-face as sneakers and hamburgers. But neither Nike nor McDonalds could have pulled off what AIG has, in China. Without a successor, though...
Update of September 4, 2001: Immediately after AIG closed on its acquisition of American General, AIG's Maurice "Hank" Greenberg told reporters that AIG is set to announce lay-offs after Labor Day. " "There will definitely be layoffs. That, unfortunately, is inevitable," he said. The Delaware office may face the first cuts, Greenberg said, although he said he couldn't provide details. Delaware is where AIG's federal savings bank is based...
Last week, the New York Banking Department ruled on AIG's appeal of the NYBD's previous decision to release information concerning American General's subprime lending for which AIG had requested confidential treatment. The NYBD's August 27 letter informs AIG that much of the withheld information will be released "fifteen days after the date of this letter." But AIG's purpose as accomplished: to keep the information redacted until the acquisition was completed.
Meanwhile, AIG's stock price has declined 21% in 2001. The Financial Post (8/30) reports that about half of AIG's revenue comes from outside the United States, with the bulk coming from Asia. AIG's most recent proposal -- a $858 million offer for three financial affiliates of South Korea's Hyundai Group -- has descended into acrimony. "We don't know if it was miscommunication or what," Greenberg said. But AIG won't wait long, he said.. The Korea Herald (8/29) editorializes: "It was all the more deplorable that [AIG's] blatant threat came before the ink dried on a memorandum of understanding the AIG consortium had signed with the Korean government last Thursday."
Update of August 28-29, 2001: The Texas Department of Insurance (TDI) held its hearing on August 28. ICP had commented to the Department from August 2 onwards. TDI scheduled a hearing for September 5, then, "at the request of AIG," switched the hearing date to August 28. ICP, in a supplemental comment, asked to be allowed to participate and testify by telephone, as ICP has been permitted to do in Form A (insurance merger) proceedings in two other states.
On August 24, TDI's Assistant General Counsel wrote to ICP stating that "We have given your request for participation by telephone serious consideration. However, in order to be equally fair with all participants, we have determined not to provide alternatives to some that are not available to all participants." ICP renewed its request, noting that TDI could post a notice on its Web site that anyone could call in and testify, and that TDI had not shown this concern "to be equally fair with all participants" when it changed the date of its already-scheduled September 5 hearing, "at the request of AIG."
On August 28, TDI again wrote (and faxed) ICP, stating that
We have received your written comments and they will be considered along with comments received at today's hearing. At the time notice was given for this hearing we did not envision a teleconference. When we received your request, we gave the matter serious consideration. Providing a teleconference hookup... would provide you an advantage not provided to other participants. This benefit would also be an element that was not included in our public notice. We therefore concluded that it would not be fair to provide this benefit to you that we could not offer to others that may have desired this accommodation. We welcome your input and will consider all of your comments.
ICP thought: this instance on not providing a "benefit" that not provided in a public notice is strange, from an agency which, after providing public notice of a September 5 hearing, moved the date up a week, at the request of the applicant. Still, ICP thought, maybe this concern about fairness meant that TDI anticipated many other in-person witnesses at the hearing in Austin.
Well, at the hearing on August 28, the only witnesses were TDI staff, AIG, American General and their outside counsel, from Akin Gump. TDI Commissioner Montemayor began the hearing by reading a script, that the hearing was being held due to "legislative and public interest," that each witness would only be given five minutes, and that the purpose of the hearing was to take in new information. Then a TDI staffer spoke; then AIG's general counsel, then American General's counsel, then the Akin Gump counsel (who urged fast approval, so that the two companies' stock prices could not be "manipulated" any more). The TDI staffer spoke again, saying that she was "ready to listen to any public comments." Commissioner Montemayor said, "We have been provided with information that we will consider in making our decision," and closed the hearing.
Later on August 28, the Texas Department of Insurance approved AIG's application. Apparently, TDI was so concerned about being "equally fair to all participants" that it excluded the only members of the public that requested (and re-requested) to testify. We will not characterize this proceeding, because we think that it... speaks for itself.
One note: as to American General's (subprime) consumer finance business, analyzed below on this page, AIG stated that it will "deploy American General's expertise in domestic consumer finance" to boost AIG's global consumer finance, and to diversify AIG's earnings. Great...
Update of August 27, 2001: On August 22, AIG submitted a response to ICP's comments to the Texas Department of Insurance (which is holding a hearing on August 28, and will decide on AIG's application thereafter). AIG moved its rhetoric up a notch -- now, AIG is threatening civil litigation, or specious legal ethics complaints, against those who raise questions about its applications for regulatory approval. In purported response to ICP's comments "question[ing] the veracity of a sworn statement provided by AIG in connection with a hearing conducted earlier this month by the Arizona Office of Administrative Hearings," AIG's August 22 letter states:
AIG reaffirms that the sworn statement is true and complete. Defaming the honesty and personal integrity of a member of AIG management, or of any individual, is a serious matter. ICP provides virtually no support for its position, stating only that 'ICP has been informed that the issue was raised to American General in May 2000.' AIG trusts that ICP is not implying that AIG knowingly issued a false statement under oath as ICP has provided no evidence of this. Such a charge would be defamatory and subject ICP to serious potential civil liability and [ICP's executive director] to a potential disciplinary action in his capacity as an attorney licensed to practice in New York.
This is a new low. Below are summaries of ICP's August 27 comment to the Texas Department of Insurance, and ICP's August 27 letter to the New York Banking Department, formally requesting reconsideration of the NYBD's August 14 approval, which was rendered while AIG was still withholding presumptively public portions of its submissions about subprime lending:
August 27, 2001
Texas Department of Insurance
Attn: Commissioner Jose Montemayor,
Assistant General Counsel Gene Jarmon,
and Eileen Shiller, Financial Analysis/Examination, et al.
333 Guadaloupe Street
Austin, Texas 78714
Dear Commissioner Montemayor, Mr. Jarmon, Ms. Shiller:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center, and in my personal capacity (collectively, "ICP"), this letter supplements the Comments we submitted on August 2, 13 and 16, 2001, opposing the applications (Form A) filed by AIG to acquire American General's Texas-domiciled insurer(s).
Since our August 16 comment, we received two phone calls from the Department's Assistant General Counsel, Mr. Jarmon. On August 22, Mr. Jarmon informed ICP that the Department does not have the facilities to allow ICP to testify by telephone. ICP responded that the switch in the hearing date from September 5 to August 28 made it more difficult (and expensive) to travel to Austin, and that ICP was requesting to testify via a speaker phone in the hearing room. On August 24, ICP received a letter from Mr. Jarmon stating that "in order to be equally fair with all participants, we have determined not to provide alternatives to some that are not available to all participants." ICP encourages the Department to allow other witnesses to testify by telephone. If the other purportedly disadvantaged participant is AIG, ICP notes that the Department has already granted an AIG request much more extreme that ICP's request to testify by telephone: the Department switched its hearing from September 5 to August 28, explicitly "[a]t the request of American International Group, Inc. (AIG) and American General Life Insurance Company...". Particularly in light of the material below, ICP renews its request that a speaker phone be placed in the hearing room, and that ICP be allowed to testify by telephone, at its own expense. A notice of the opportunity to testify in this manner could and should be placed on the Department's above-quoted Web site.
On August 22, AIG purported to respond to ICP's Comments. AIG faxed a copy of its letter to ICP on August 23, after close of business. ICP was most struck by AIG's statements on page 5:
ICP Claim #11: ICP questions the veracity of a sworn statement provided by AIG in connection with a hearing conducted earlier this month by the Arizona Office of Administrative Hearings.
AIG's Response: AIG reaffirms that the sworn statement is true and complete. Defaming the honesty and personal integrity of a member of AIG management, or of any individual, is a serious matter. ICP provides virtually no support for its position, stating only that "ICP has been informed that the issue was raised to American General in May 2000." AIG trusts that ICP is not implying that AIG knowingly issued a false statement under oath as ICP has provided no evidence of this. Such a charge would be defamatory and subject ICP to serious potential civil liability and Mr. Lee to a potential disciplinary action in his capacity as an attorney licensed to practice in New York.
As the record before the Department shows, ICP has in each of its Comments questioned when American General first learned that one of its predecessor companies wrote insurance policies on slaves. AIG has yet to provide a factual response to this simple question. Here is how ICP put it, in its August 16 (and August 2) comments:
at the August 2, 2001, hearing of the Arizona Office of Administrative Hearings, AIG's lead witness stated that AIG first became aware of it when ICP submitted it to the Arizona Department on August 1, and that he immediately telephoned American General's general counsel and executive vice president for governmental affairs, who stated that they had not been aware of it.
ICP has been informed that the issue was raised to American General in May 2000, including in a detailed message, which included the number of the policy, the name of the policy holder, and the date, to American General official John E. Pluhowski (who is listed as American General's contact on nearly every American General press release). An American General staffer, Nicole, had indicated that Mr. Pluhowski was the appropriate official to whom this information should be directed. (To further document for the record the relevance of this issue, consider California Insurance Code Section 13810, et seq.).
This is a matter to be explored at the hearing -- it reflects not only on American General, but also on AIG: the quality of AIG's due diligence, and AIG's lead witness' sworn statement at the August 2 Arizona hearing (the Department should request and obtain a copy of the transcript of the Arizona hearing).
--emphasis added; footnote omitted.
AIG's August 22 letter, like its August 15 letter, evades the question. AIG's August 22 letter goes further, and threatens ICP with civil litigation and/or a specious legal ethics complaint. AIG's August 22 letter states that "ICP provides virtually no support for its position...". Attached hereto is a statement from the individual who raised this matter to American General on May 18, 2000, and a copy of the individual's telephone bill, reflecting four calls on that date to American General.
We also note that, in light of AIG's just-announced $1.6 billion acquisition of a securities brokerage in South Korea, AIG's Form A presentation should be updated, in advance of the hearing. See, e.g., Reuters news wire of August 24, 2001.
In this light, ICP renews its request to testify by telephone at the hearing (the date of which the Department switched, at AIG's request). ICP has commented and provided evidence directed at the statutory factors that the Department must consider. AIG has evaded the issues raised, and, rather, has ham-handedly threatened ICP with civil litigation and/or a specious legal ethics complaint, for even having raised the issue. The Department should not allow such behavior by an institution which it regulates, much less benefit such an institution by switching the date of an already announced hearing, and then excluding the participation of a timely commenter who has requested to participate in the date-switched hearing by telephone. On the current record, the Department could not legitimately approve AIG's applications.
ICP intends to present further information at the August 28 public hearing (see supra), including concerning questionable insurance practices. To provide the confirmation requested above, please contact me at your soonest convenience, at ICP's headquarters office at (718) 716-3540; fax (718) 716-3161. Thank you for your attention.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
cc: Ernest T. Patrikis, Esq.
American International Group, Inc.
* * *
August 27, 2001
New York State Banking Department and Board
Attn: First Deputy Superintendent Daniel A. Muccia, et al.
Two Rector Street
New York, NY 10006
Dear Mr. Muccia, Board Sec't Christine Tomczak, others:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this letter formally requests reconsideration of the First Deputy Superintendent's August 14, 2001, approval of the above-captioned Applications.
As set forth below, ICP contends that the Department should not have approved AIG's application while ICP had still not received, and been permitted to comment on, information concerning American General's subprime lending for which AIG improperly requested confidential treatment. The Department's Acting First Assistant Counsel's August 14 letter to AIG ruled that AIG's requests for confidential treatment were unwarranted, and gave AIG ten days to appeal. In light of the Department's past practice, which ICP believed was a Department policy, of allowing a timely protestant to comment on all portions of an applicant's submissions which are not exempt under the Freedom of Information Law ("FOIL"), once ICP received its copy of the Acting First Assistant Counsel's August 14 letter, ICP then awaited the improperly withheld material. But the Department went forward and approved AIG's applications, in contravention of the Department's past practice, and principles of public participation that are embodied, for example, in the Office of the Comptroller's regulation at 12 C.F.R. 5.10(b)(2)(i) -- "(2) Extension. The OCC may extend the comment period if: (i) The applicant fails to file all required publicly available information on a timely basis to permit review by interested persons or makes a request for confidential treatment not granted by the OCC that delays the public availability of that information...". Accordingly, ICP asks that the Department suspend or stay its August 14 approvals, release to ICP the improperly withheld information, and allow ICP to comment thereon.
Background
ICP timely protested the Applications, from July 2 onwards. ICP's submissions, which are incorporated into this request by reference, including evidence of American General loans at interest rates as high as 40%, 36% and 32%, most with high-cost credit insurance.
On July 26, 2001, Deputy Superintendent Kramer posed 12 questions to AIG, on issues directly related to those raised in ICP's comments. AIG's response was due on August 2.
On August 1, ICP asked AIG's outside counsel for a copy of the response (at least those portions for which AIG did not make a request for confidential treatment).
On August 2, ICP submitted a supplemental comment, with attachments, and noted therein its request for a copy of AIG's response, in order to comment thereon, as has been the practice in other similar cases.
On August 3, ICP telephoned Mr. Brooks and Mr. Kramer, inquiring into when it would receive a copy of AIG's response. ICP also submitted a Freedom of Information Law ("FOIL") request.
On Monday, August 6, ICP received a phone message from Mr. Kramer, that ICP would be receiving a copy of AIG's response.
On Tuesday, August 7, not having received any portion of the response, ICP contacted Mr. Kramer by telephone.
On Wednesday, August 8, the undersigned returned a phone message from AIG's general counsel, who expressed a willingness to meet about the issues at some future date (and see infra). ICP asked about AIG's response to the NYBD; AIG's general counsel responded that he's asked someone to provide it, or some of it, to ICP.
Minutes after this brief phone conversation, AIG faxed ICP a copy of a letter it had directed to the Superintendent. AIG's letter thanked the Department for its diligence in reviewing AIG's application, stated that "when the transaction is closed I will continue to be here personally to respond to the Department's concerns," and that "after the transaction closes, I also plan to meet with Mr. Matthew Lee to further discuss his concerns. I have put in a call to him to get that underway."
Concerned by the tone of the letter, ICP inquired with the Department. ICP came away from telephone discussions with two Department staffers with the understanding that it would be provided with the portions of AIG's response that do not qualify for FOIL exemptions, and with an opportunity to comment thereon, prior to the NYBD's decision on AIG's applications. ICP has already informed the Department that AIG could not consummate the proposal by August 15: the Texas Department of Insurance has scheduled a hearing for September 5 (since moved up, at AIG's request, to August 28).
ICP received two heavily-redacted versions of AIG's August 6 response; on August 14, ICP received a copy of the Department's Acting First Assistant Counsel's letter to AIG, stating that several of AIG's request for confidential treatment were unwarranted, and giving AIG 10 days to appeal. Specifically, the information improperly withheld by AIG includes:
--a full paragraph describing American General's purported Training Programs;
--a description of American General's System Controls;
--information concerning American General's non-real estate loans (which American General makes at interest rates as high as 40%, 36% and 32%, as presented to your Department by ICP);
--information concerning American General's closed- and open-end first and second mortgage loans, and its "bulk purchase;"
--the names of brokers in New York State with whom American General has agreements;
--American General's entire response about its purported risk-based pricing, and how it determines interest rates; and
--paragraph-long descriptions of at least nine administrative complaints against American General; etc..
As noted above, from ICP's August 8 telephone inquiries, and from the Department's past practice of extending the comment period in such cases (a sample letter, from the Chase-Morgan proceeding, is annexed hereto; the same process was applied in the 2000 CSFB and other proceeding), ICP assumed that it would receive the improperly withheld information and be allowed to comment thereon, prior to NYBD decision on the applications.
However, on August 15, ICP got word that the Department had approved AIG's applications on August 14. ICP inquired, and the next day heard back from the Department. ICP provided the above-quoted OCC regulation, and expressed an interest in requesting reconsideration. ICP immediately submitted a FOIL request for Deputy Superintendent Kramer's recommendation memo in the case, but has, as of this writing, not received it. While ICP continues to await that memo, and the subprime lending information improperly withheld by AIG, ICP is submitting this request for reconsideration.
For your information, in a submission to the Texas Department of Insurance dated August 22 (annexed hereto), AIG threatens ICP and the undersigned with civil litigation and a (specious) legal ethics complaint -- arising out of ICP's comments raising questions about AIG's proposed acquisition of American General.... AIG's August 22 letter states that "ICP provides virtually no support for its position...". Attached hereto is a statement from the individual who raised this matter to American General on May 18, 2000, and a copy of the individual's telephone bill, reflecting four calls on that date to American General.
But also, as recounted above, AIG on August 8 wrote to the Department stating inter alia that "when the transaction is closed I will continue to be here personally to respond to the Department's concerns," and that "after the transaction closes, I also plan to meet with Mr. Matthew Lee to further discuss his concerns. I have put in a call to him to get that underway. It does not hurt to learn." Less that two weeks after that statement to the Department, AIG has made the above-recounted threats, which we believe are inappropriate for NYBD-supervised entities as responses to comments from consumer-, civil rights- and/or community-based groups. Such behavior, left unaddressed, might limit public comment to the Department in the future, as to these applicants. In light of a conversation with NYBD staff, ICP will, in conclusion, go beyond its statement that AIG's request for confidential treatment was unwarranted: it appears to have been in bad faith, simply meant to deny a timely protestant access to information on which to comment. ICP contends that the above provide the Department with more than enough grounds to suspend its August 14 approvals, to allow comment on the improperly withheld information.
And so: in light of the above, ICP formally asks the Department to stay or vacate its August 14 approvals, to release the improperly withheld information about subprime lending, and to allow ICP to comment thereon. The Texas Department of Insurance is holding a hearing on August 28, and has stated that it will not rule thereafter. Nevertheless, time is of the essence, and ICP requests a response as quickly as possible.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
cc: Ernest T. Patrikis, Esq.
American International Group, Inc.
NOTE: This page will be updated. For or with more information, contact us.
* * *
Update of August 20, 2001: In the run-up to the Texas Department of Insurance's (TDI's) public hearing on AIG - American General on August 28, we are summarizing below the comments ICP has submitted to TDI. The agency has already put into question the objectivity of its review. The Houston Chronicle of August 16 reported:
The hearing had been scheduled for Sept. 5, but New York-based AIG and American General successfully lobbied to have it moved up a week to Aug. 28 at 1 p.m. State regulators have fielded about 100 calls from shareholders, investment bankers and stockbrokers wanting to know if and when the department will approve the merger, insurance department spokesman Mark Hanna said. "All the calls seem to be coming from the 212 or 202 area codes," Hanna said. New York City and Washington, D.C., investors are particularly interested in Texas' process because this state is seen as the one that could have the most concerns. "This deal has more impact on Texans than it has on people anywhere else," Hanna said.
So -- TDI moved up the date of its public hearing in order to better serve Texas consumers? We continue to await TDI's response on either it has a speaker phone. Here's a summary of comments to date:
August 16, 2001
Texas Department of Insurance
Attn: Commissioner Jose Montemayor,
Assistant General Counsel Gene Jarmon,
and Eileen Shiller, Financial Analysis/Examination, et al.
333 Guadaloupe Street
Austin, Texas 78714
Dear Commissioner Montemayor, Mr. Jarmon, Ms. Shiller:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center, and in my personal capacity (collectively, "ICP"), this letter supplements the Initial Comments we submitted on August 2 and 13, 2001, opposing the application (Form A) filed by AIG to acquire American General's Texas-domiciled insurer(s).
Since our August 13 comment, we have learned that the Department has switched its hearing from September 5 to August 28, "[a]t the request of American International Group, Inc. (AIG) and American General Life Insurance Company...". Our August 13 comment had opposed this change. In light of the changed date, and impact it has on the logistics and cost of travel, we reiterate our request to participate in the hearing by telephone. Mr. Jarmon informed us on August 15 that there is a question whether the facilities will allow this. We urge you to hold the hearing in a room with a speaker phone, particularly given the date-switch after notice of the September 5 hearing had already been provided.
On August 15, AIG purported to respond to ICP's August 13 comment, which AIG claims "is riddled with inaccuracies and is a poor attempt to mislead the Department[]." As set forth below, we disagree.
The first purported inaccuracy or "mislead[ing]" alleged by AIG ignores the plain language of footnote 1 of ICP's August 13 comment: "The Arizona Office of Administrative Hearings allowed ICP to participate on August 2 in a pre-hearing conference in connection with AIG's Arizona Form A Application, and to remain present for the hearing, via telephone." Emphasis added. Furthermore, it is our understanding that the purpose of the Department's now-August 28 hearing is to hear testimony from the public, without application of the legal hurdles applicable to the Arizona Office of Administrative Hearings proceeding held on August 2, 2001. Again, we wish to participate, and present testimony, by telephone.
As to AIG's second point, annexed hereto is a letter from the New York Banking Department ("NYBD") to AIG, dated August 14, 2001, which rejects a number of AIG's requests for confidential treatment for portions of its submission to the NYBD regarding American General's subprime practices. We reiterate that in all prior NYBD proceeding, timely commenters were provided with all responses not exempt from disclosure, and allowed to comment thereon prior to NYBD decision on the underlying application. In fact, in the AIG - American General NYBD proceeding, ICP was informed on August 8 that it would be provided with this opportunity. ICP was surprised by word of the NYBD's August 14 decision (ICP still does not have the information that the NYBD has now ruled that AIG improperly withheld) -- ICP is inquiring with the NYBD.
In any event, the attached letter, when compared to the attachment to ICP's August 13 comment, demonstrates that the improperly withheld information includes:
--a full paragraph describing American General's purported Training Programs;
--a description of American General's System Controls;
--information concerning American General's non-real estate loans (which American General makes at interest rates as high as 40%, 36% and 32%, as presented to your Department by ICP);
--information concerning American General's closed- and open-end first and second mortgage loans, and its "bulk purchase;"
--the names of brokers in New York State with whom American General has agreements;
--American General's entire response about its purported risk-based pricing, and how it determines interest rates; and
--paragraph-long descriptions of at least nine administrative complaints against American General; etc..
The law cited in the NYBD's annexed letter gives AIG 10 days to appeal the NYBD's planned release of information. To ICP's knowledge, AIG has not yet appealed. However, on that time line, ICP would anticipate having the improperly withheld information on or before the August 28 hearing, and hereby requests to be allowed to testify, about this information and other issues, by telephone on August 28.
AIG's third point is inappropriately evasive. ICP's August 13 comment, elaborating on the documentary evidence that ICP submitted on August 2 that a predecessor to American General wrote insurance policies on slaves, stated that
at the August 2, 2001, hearing of the Arizona Office of Administrative Hearings, AIG's lead witness stated that AIG first became aware of it when ICP submitted it to the Arizona Department on August 1, and that he immediately telephoned American General's general counsel and executive vice president for governmental affairs, who stated that they had not been aware of it.
ICP has been informed that the issue was raised to American General in May 2000, including in a detailed message, which included the number of the policy, the name of the policy holder, and the date, to American General official John E. Pluhowski (who is listed as American General's contact on nearly every American General press release). An American General staffer, Nicole, had indicated that Mr. Pluhowski was the appropriate official to whom this information should be directed. (To further document for the record the relevance of this issue, consider California Insurance Code Section 13810, et seq.).
This is a matter to be explored at the hearing -- it reflects not only on American General, but also on AIG: the quality of AIG's due diligence, and AIG's lead witness' sworn statement at the August 2 Arizona hearing (the Department should request and obtain a copy of the transcript of the Arizona hearing).
--emphasis added; footnote omitted.
AIG's August 15 letter is signed by the same individual who testified under oath for AIG at the August 2 Arizona hearing. While the underlying issue (American General's predecessor's issuance of slave policies) may date from the mid-1800s, ICP has questioned the accuracy of AIG's General Counsel's sworn statement on August 2, 2001, in light of communications to a senior American General official in May 2000. AIG's general counsel is, ICP contends, among those who would control and affect the target insurer. The issue is relevant, and ICP is struck that, now having been given two opportunities to address this 2000 / 2001 matter, AIG continues to evade it.
AIG's fourth and final point is to call the October 2000 article including in ICP's August 13 comment "outdated." The article is less than a year old. The issues raised in the article still exist. ICP has reviewed AIG's proxy of April 6, 2001 (AIG's 10-K of April 2, 2001, did not include Board of Directors information). This proxy (unless AIG wishes to claim that it, too, is "outdated") mentions, in opposing two corporate governance-directed shareholders' resolutions, that AIG's CEO's son resigned in September 2000, and another insider board member retired. Nevertheless, eight of AIG's 18 directors are still insiders, and insiders continue to participate in the nomination process. AIG does not address its failure to disclose director compensation, or amounts paid to the firms of outside directors.
AIG, in purporting to respond to ICP's August 13 comment, neither confirms nor denies the statement that "in late 2000, AIG consummated its acquisition of Hartford Steam & Boiler before it had received certain regulatory approvals (including from the United Kingdom and China)." We ask for such confirmation, and confirmation that AIG cannot and will not move to consummate this proposal until the Department rules, including on information presented at the August 28 public hearing.
ICP intends to present further information at the August 28 public hearing (see supra). To provide the confirmation requested above, please contact me at your soonest convenience, at ICP's headquarters office at (718) 716-3540; fax (718) 716-3161.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
cc: Ernest T. Patrikis, Esq.
American International Group, Inc.
August 13, 2001
Texas Department of Insurance
Attn: Commissioner Jose Montemayor,
and Eileen Shiller, Financial Analysis/Examination, et al.
333 Guadaloupe Street
Austin, Texas 78714
Dear Commissioner Montemayor, Ms. Shiller, others:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center, and in my personal capacity (collectively, "ICP"), this letter supplements the Initial Comment we submitted on August 2, 2001, opposing the application (Form A) filed by AIG to acquire American General's Texas-domiciled insurer(s).
Since our Initial Comment, we have become aware of the Department's Notice (Docket No. 2493) that on September 5, 2001, it will consider public testimony regarding the Form A Applications. As should be clear from ICP's Initial Comment, we would like to participate in the September 5 proceeding. We note, in the American Banker newspaper of August 10, 2001, at 3: "the Texas Insurance Department has scheduled a Sept. 5 hearing on the merger, a department spokesman said. AIG has asked that the hearing be rescheduled for an earlier date, and the department is considering it, the spokesman said." For the record, we urge the Department not to move the hearing up to an earlier date. Due to the above-quoted, as well as resources consideration, an ICP representative may not be able to travel to Austin. However, we would like to participate by telephone.
While ICP may be submitting further comments prior to the hearing, we wish to reply to AIG's purported Response, dated August 7, 2001. AIG's Response directs its first substantive paragraph to (mis-) characterizing ICP, and claiming that the Office of Thrift Supervision's ("OTS'") July 31 decision to waive its formal meeting regulations somehow militates for the Department to disregard ICP's comments. AIG states that it "expects that its application to the New York Banking Department will be approved shortly." AIG also attempts to minimize the issues, including insurance-related issues, raised by the sample American General loan-and-insurance documents that ICP submitted on August 2 (including loans at interest rates up to 40%, with "packed" insurance that was allegedly not disclosed to customer), by stating that appropriate regulators have implicitly sign-off on these practices. AIG Response at 3.
In this regard, ICP is annexing hereto a heavily redacted copy of AIG's response to questions that the NYBD has posed, related to issues ICP has raised. AIG is seeking to withhold virtually all substantive portions of its responses, and the NYBD has informed ICP that it will not rule on AIG's application until the Freedom of Information Law issues raised by AIG's request for confidential treatment are resolved, and ICP has had an opportunity to comment on AIG's now-hidden response. We anticipate receiving much of the now-redacted information, and to commenting further to your Department.
Next, AIG's response purports to address the documentary evidence that ICP submitted on August 2, that a predecessor to American General wrote insurance policies on slaves. Beyond AIG's bluster, it does not describe how and when American General (and AIG, in due diligence) became aware of this issue. But at the August 2, 2001, hearing of the Arizona Office of Administrative Hearings, AIG's lead witness stated that AIG first became aware of it when ICP submitted it to the Arizona Department on August 1, and that he immediately telephoned American General's general counsel and executive vice president for governmental affairs, who stated that they had not been aware of it.
ICP has been informed that the issue was raised to American General in May 2000, including in a detailed message, which included the number of the policy, the name of the policy holder, and the date, to American General official John E. Pluhowski (who is listed as American General's contact on nearly every American General press release). An American General staffer, Nicole, had indicated that Mr. Pluhowski was the appropriate official to whom this information should be directed. (To further document for the record the relevance of this issue, consider California Insurance Code Section 13810, et seq.).
This is a matter to be explored at the hearing -- it reflects not only on American General, but also on AIG: the quality of AIG's due diligence, and AIG's lead witness' sworn statement at the August 2 Arizona hearing (the Department should request and obtain a copy of the transcript of the Arizona hearing).
Because AIG's Response notes that ICP "incorrectly centers its allegations on American General rather than on AIG," we wish to enter the following into the record: AIG has been identified as having one of the first "worst boards of directors." (This clearly goes to the competence, experience and integrity of those persons who would control the operation of the insurers):
Chief Executive (U.S.), October 1, 2000
HEADLINE: Boards on Trial; five best and five worst corporate boards for the year [snip]
As to VALIC, one of the companies that AIG proposes to acquire, consider this:
Copyright 2001 The Baltimore Sun Company
The Baltimore Sun
January 5, 2001 Friday, Pg. 1B
HEADLINE: Treasurer intervenes in pension panel vote;
Hastily convened, board reverses itself, keeps fund manager
BYLINE: Greg Garland [snip]
We seek confirmation that we will be able to participate in the September 5 hearing by telephone. We have become aware that in late 2000, AIG consummated its acquisition of Hartford Steam & Boiler before it had received certain regulatory approvals (including from the United Kingdom and China). In this light, we request confirmation that AIG cannot move to consummate the proposal prior to receiving approval from the Department.
While we anticipate submitting additional comments, we contend that on the current record, the Department should not move up its September 5 hearing, should allow ICP (and others) to participate at the September 5 hearing (including by telephone), should inquire into the issues ICP and others have raised, and, on the current record, should not approve AIG's applications.
Thank you for your attention. If additional information is needed from ICP, and to provide the confirmations request above, please contact me at your soonest convenience, at ICP's headquarters office at (718) 716-3540; fax (718) 716-3161.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
cc: Ernest T. Patrikis, Esq.
American International Group, Inc.
August 2, 2001
Texas Department of Insurance
Attn: Commissioner Jose Montemayor,
and Eileen Shiller, Financial Analysis/Examination, et al.
333 Guadaloupe Street
Austin, Texas 78714
Dear Commissioner Montemayor, Ms. Shiller, others:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center, and in my personal capacity (collectively, "ICP"), the purpose of this letter and the attachments hereto is to bring to the attention of the Texas Department of Insurance (the "Department") at the earliest possible time, and in connection with the application (Form A) filed by AIG to acquire American General's Texas-domiciled insurer(s) certain troubling, and ICP believes important, information, including evidence that United States Life Insurance Company of New York, a predecessor of American General, wrote slave insurance policies (see Exhibit 1, annexed hereto).
This should be inquired into, in the Form A proceeding. In support of that, ICP notes that the California Department of Insurance ("CDI") now implements a law, passed by the California legislature, which, as summarized on CDI's Web site, "requires the Commissioner to obtain from insurers the names of slaveholders or slaves described in insurance records and make the information available to the public and the Legislature. Requires that insurers licensed to do business in California research their records and report to the Commissioner any information they may have of insurance policies sold to slaveholders that provided coverage for damage to or death of their slaves." See, also, Best's Review, January 1, 2001, "In Search of Policies Past: California Slave Policies." These demonstrate that the issue is material, or at least potentially material, to the Form A proceeding.
ICP became aware of the annexed sample slave insurance policy on July 30, 2001. ICP raised it, in filings to the Arizona Department of Insurance and Office of Administrative Hearings dated July 31 and August 1, 2001, both copied to AIG. At an August 2 hearing in Phoenix before the Arizona Department of Insurance, at which ICP was present telephonically, AIG's general counsel stated that AIG's due diligence did not uncover this issue, that the first time he became aware of it was in connection with ICP's July 31 comment, and that he conferred with two American General officials (the company's general counsel, and executive vice president for government affairs), and that they stated they had been unaware of it.
At today's Arizona hearing, AIG's general counsel was questioned by the Administrative Law Judge regarding other Form A applications filed and pending, and the Texas Department of Insurance proceeding was mentioned. AIG's general counsel stated that the TDI is reviewing the application particularly closely, given the size (and headquarters) of American General's operations in Texas. ICP is submitting this mere hours thereafter.
We do not know if the Department has held, or will held, a hearing on AIG's application. If a hearing has already been held, we still urge that the attachment information be included in the record, at a minimum as written statements of a non-party, or otherwise. You may remember that ICP commented to the Department last Fall concerning Citigroup's Form A applications to acquire two Associates First Capital Corp. insurers. As you may be aware, after the Citigroup - Associates proceeding, the Federal Trade Commission on March 6, 2001, sued Citigroup and Associates, for predatory lending and insurance practices. We note this in support accepting and acting on the attached: the issues ICP previously raised to the Department were subsequently "validated" by government consumer protection officials.
The slave insurance issue we are raising (along with the below) is an important and timely issue. ICP's other objections are summarized further below in this letter.. We are also annexing hereto certain sample loan (and insurance) documents: loans at interest rates of 40%, 36% and 32%, with notably high credit insurance premiums. These practices adversely affect consumers, including ICP's members. We believe that the sample American General loan and insurance documents attached hereto speak for themselves, to some degree: nearly all involve high-priced credit insurance; several of these loans are still outstanding, These American General loan notes raise a panoply of predatory insurance issues into which we urge the Department to inquire.
We do not wish to burden you with too extensive a preliminary submission. For your information, another agency, the New York Banking Department, has identified other unresolved issues on AIG's proposal. The NYBD on July 26 asked AIG to provide the NYBD with the following: [See below on this page].
We urge the Department to request and obtain AIG's response, due today, to the NYBD, and review all insurance-related portions thereof. We also urge the Department to ask additional questions, including without limitation:
--How are American General's / MorEquity's and their affiliates' branch managers compensated? I.e., Salary, or bonuses based on rates and fees charged to applicants, and insurance sold to applicants.
-- Is credit insurance included in figures used to calculate bonuses?
-- Is the penetration rate of credit insurance tracked?
-- Is there a target penetration rate?
--Are there any goals, standards or quotas placed on branch manages to reach in the sale of credit insurance?
-- Are employees trained to verbally tell customers that they are getting credit insurance?
-- Are American General's / MorEquity's and their affiliates' branch managers instructed to encourage customers to make payments in person?
-- Are American General's / MorEquity's and their affiliates' branch managers supposed to solicit new money every time a customer comes in to make a payment?
-- What type of mail out solicitations are used and how often are they sent? Etc.
That American General was charged with race-based insurance underwriting is a serious adverse issue to be discussed at the hearing. In other forums, AIG has attempted to minimize the issue by saying it was companies that American General acquired, "unbeknowst" to it. At a minimum, this (also) raises managerial resources question, including the sufficiency of due diligence, on which AIG is asking the Department to rely.
We are rushing to make this request as quickly as possible - we only today because aware of the Form A application pending before the Department, and only became aware of the first exhibit hereto on July 30, 2001.
On the current record, we do not believe that AIG's Application should be approved. Thank you for your attention. If additional information is needed from ICP, please contact me at your soonest convenience, at ICP's headquarters office at (718) 716-3540; fax (718) 716-3161.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
cc: Ernest T. Patrikis, Esq.
American International Group, Inc.
NOTE: This page will be updated. For or with more information, contact us.
* * *
Update of August 16, 2001: The irregularities -- to say the least -- connected to AIG's ongoing search for regulatory approvals to acquire American General have continued. They began on July 31, when the Office of Thrift Supervision waived it own regulations, which required that a formal meeting be held. The Texas Department of Insurance then scheduled a hearing for September 5. But on August 14, after pressure from AIG, the Texas Department of Insurance moved its hearing up to August 28, stating that "[a]t the request of American International Group, Inc. (AIG) and American General Life Insurance Company, the Commissioner of Insurance has rescheduled the public hearing regarding the AIG acquisition request." At 6 p.m. on August 15, Texas Department of Insurance assistant general counsel Gene Jarmon called to say that the Department is inquiring into ICP's request to participate by telephone, but that "the facilities" might not permit it. No speaker phone?
The irregularity that triggers this mid-week update, however, has been as the New York Banking Department. ICP submitted detailed comments to the NYBD, which, on July 26, asked AIG twelve questions about American General's subprime lending. AIG's response was due on August 2, but was only provided to the NYBD on August 7. The NYBD provided ICP with a heavily redacted (blacked-out) copy. On August 8, after AIG general counsel Ernest Patrikis has faxed the NYBD the strangely-worded letter quoted in the Update immediately below, ICP wrote to the NYBD, emphasizing that in all previous cases, timely commenters like ICP have been given the right to receive copies of applicants' responses with only material exempt under the Freedom of Information Law redacted, and an opportunity to comment on the thus-unredacted responses. Three NYBD officials called ICP back, stating that they had confirmed that the Texas Department of Insurance hearing made it impossible for AIG to consummate the deal until the hearing date, and that the NYBD would be informing AIG of what parts of the blacked-out response had to be provided to ICP under the Freedom of Information Law. ICP was told that AIG's over-broad request for confidential treatment would not benefit AIG, that ICP would be allowed to comment on the final unredacted version of the response, and, it seemed and seems entirely clear to ICP, that the NYBD would not rule on AIG's applications until then.
On August 10, small portions of AIG's response were released; the NYBD's cover letter stated that their review continued. On August 14, the NYBD faxed ICP a copy of a letter it had just sent to AIG, informing Mr. Patrikis that several of his requests for confidential treatment were not warranted, and giving AIG ten days to appeal. ICP, based on past precedents and the NYBD's August 8 statements, continued to await receipt of the material the NYBD had no determined must be released, for comment.
On August 15, ICP got word that the NYBD had hauled off and approved AIG's applications, on August 14. ICP telephoned the NYBD. Four of the five staff members ICP sought to speak with were on vacation; the fifth was out of town. Finally, ICP spoke with the NYBD's public information officer, who confirmed that the Department had approved AIG's applications, and asked what ICP's concerns were. ICP explained: among the portions of AIG's response that the NYBD on August 14 ruled must be released (while simultaneously approving AIG's application, so that no one could comment on the improperly withheld information) are:
--a full paragraph describing American General's purported Training Programs;
--a description of American General's System Controls;
--information concerning American General's non-real estate loans (which American General makes at interest rates as high as 40%, 36% and 32%, as presented to the NYBD by ICP);
--information concerning American General's closed- and open-end first and second mortgage loans, and its "bulk purchase;"
--the names of brokers in New York State with whom American General has agreements;
--American General's entire response about its purported risk-based pricing, and how it determines interest rates;
--paragraph-long descriptions of at least nine administrative complaints against American General; etc..
The NYBD's August 14 approval of AIG's applications, on the same day it ruled that all of the above information has been improperly withheld by AIG (but before any of the information was released) was inconsistent with the NYBD's prior precedents (in cases involving Chase Manhattan, CSFB and others), and was inconsistent with what the NYBD told ICP, on August 8, 2001. There wasn't even a reason for the NYBD to violate its precedents and representations: AIG still cannot consummate the deal until, at earliest, August 28 (the new date for the Texas Department of Insurance hearing). So why did the NYBD and its Superintendent approve AIG's applications on August 14? Again, we'll leave that to cooler minds, for now. Developing... For or with more information, contact us.
Update of August 13, 2001: The beat goes on. Since at least late July, AIG has been stating that it intends to "consummate" its proposed acquisition of American General immediately after American General's shareholders' meeting, on August 15. That was the pitch that AIG made to the Office of Thrift Supervision, that the OTS could not even follow its own formal meeting regulations and grant ICP's July 29 request for a formal meeting. The OTS on July 31 "waived" its regulations, and approved AIG's application. Since this Bank Merger Act approval requires that AIG wait at least 15 days to act on it, AIG needed a July 31 approval to hit the August 15 target date. OTS staff dutifully stayed working until 9:30 p.m. on July 31, to issue the approval order, and only issued a press release about the approval at 2 p.m. the next day.
Well, that timing is out the window, making the OTS' capitulation all the more shameful (or senseless, take your pick). Last week, the Texas Department of Insurance announced that it will hold a hearing on AIG's proposal, on September 5. AIG cannot consummate the deal prior to that hearing, and the Texas Department of Insurance's ruling (AIG hopes, approval) thereafter.
This hasn't kept AIG for continuing its hard-sell to regulators. On August 7, AIG wrote to three insurance departments (Texas, Indiana and Pennsylvania), purporting to respond to ICP's August 2 submissions. AIG's letter is full of the type of invective that we've previously reported, below on this page: "ICP should be condemned," etc.. AIG asks the insurance departments to defer to the OTS' July 31 approval, and states that it "expects that its application to the New York Banking Department will be approved shortly."
Also on August 7, AIG's general counsel left a phone message at ICP's office, expressing a desire to "chat informally about the future." ICP returned the call on August 8. AIG's general counsel answered his phone, but was in a rush to get off the line: he repeated that his desired "chat" should take place once the "dust had settled" on AIG's proposed take-over of American General. ICP asked when it would receive a copy of AIG's response to the NYBD's questions about American General's lending practices, which was due on August 2. "I've asked someone else to get a copy of that to you," AIG's general counsel said. And that was the end of the conversation.
Ten minutes later, AIG's general counsel faxed a letter to the NYBD, and a copy to ICP. The letter has a meditative tone:
It has occurred to me that the change in control application process is perhaps one of the few opportunities that the Department staff has to deal directly with the ultimate parent (or ultimate parent to be) of a consumer finance company and a mortgage lender. I want to assure you and the members of your staff that AIG takes its duties of overseeing the operations of its subsidiaries very seriously. We expect our subsidiaries to comply with the letter and the spirit of the law and applicable regulations. That said, rest assured that, when the transaction is closed I will continue to be here to personally respond to the Department's concerns about American General's consumer finance and mortgage lending activities in New York State. After our transaction closes, I also plan to meet with [ICP] to further discuss [its] concerns. I have put in a call to [ICP] to get that underway. It does not hurt to learn. Finally, I would like to take this opportunity to thank your staff for their professionalism and diligence in reviewing our application. I look forward to working with you and them in the future.
It suddenly "occurred" to ICP that the purpose of AIG's general counsel's call was simply to be able to make this representation to the NYBD (the above-quoted letter was faxed to ICP ten minutes after the call). From the tone of AIG's letter, with its focus on "the future... after the transaction closes," ICP became concerned, and submitted a letter to the NYBD, reiterating its request for a copy of AIG's response due August 2.
The NYBD has explained to ICP that it will be given all portions of AIG's response that are not exempt under the Freedom of Information Law. The NYBD has given AIG ten days to justify its request to withhold virtually all of its response. On August 8, the NYBD mailed ICP a version of AIG's response, with full pages blacked-out. On August 10, the NYBD faxed ICP a slightly less blacked-out version, along with a cover letter stating that "we are continuing our review pursuant to Section 89.5 of the New York Public Officers Law." The redactions remain absurd: a sentence begins, "Prior to October 2000, AGHE made loans in New York subject to the federal Home Ownership and Equity Protection Act ('HOEPA') with term"-- followed by three blacked-out lines. On page 5, AIG begins: "A copy of the agreement between AGHE and the broker [REDACTED] is attached as a confidential exhibit. AGHE received [REDACTED] applications in New York from this broker relationship so far this year." There follows a list of "pending cases" -- just the names, not the venue, or any description: Sardar M. Naeem v. American General Finance Inc.; and a list of settled cases (again without venue or summary): AGFI v. Joseph and Shirley Caruso; Willian and Anna May Eastwood v. TransAmerica Credit a/k/a American General Finance Corp.; AGFI v. Timothy Mascord; Roland Davis v. AGHE; Cecelia Prescott v. AGHE, et al.; Rebecca Hackett v. AGFI; Samuel & Beethels Williams v. AGFI. A two page long list of administrative complaints is entirely redacted. AIG's letter leaves unredacted its conclusion: "AIG appreciates the Department's prompt consideration of the Applications...". But for now, AIG's over-broad request for confidential treatment precludes even consideration of its applications...
On August 12-13, ICP submitted letters to the insurance departments in Texas, Indiana, Pennsylvania and Arizona, replying to AIG's August 7 submission. ICP has requested to participate in the Texas Insurance Department's hearing on September 5, and has opposed AIG's request to have the date of that already-noticed hearing moved up. The American Banker of August 10 reported, among other things, that
the Texas Insurance Department has scheduled a Sept. 5 hearing on the merger, a department spokesman said. AIG has asked that the hearing be rescheduled for an earlier date, and the department is considering it, the spokesman said. But a 10-day notice requirement for hearings precludes a meeting before Aug. 15. The Arizona insurance commission has until Sept. 5 to make a decision on the approval.... The New York Banking Department posed 12 questions about American General's subprime lending arm's compliance with fair lending and consumer protection laws, and its method for determining interest rates for loan products that have risk-based pricing. AIG provided answers on Aug. 3, which the agency is still reviewing. The banking department refused to release the substance of AIG's answers, citing the company's request that the information be kept confidential because it is proprietary.
AIG declined to comment on the regulatory process, but senior vice president and general counsel Ernest T. Patrikis made it clear the company wanted quick approval in a July 30 letter to the Office of Thrift Supervision.
Two days later, on Aug. 1, the OTS gave the New York insurance giant, which owns the thrift AIG Bank, approval to take control of Houston-based American General and its federal savings bank, American General Bank of Midvale, Utah.
In approving the deal, the federal thrift regulator waived its rule requiring formal meetings with groups concerned about an acquisition's effects on a thrift's Community Reinvestment Act obligations.
AIG's July 30 letter argued against holding such meetings. "Such a policy will extend the processing periods for applications by weeks on end -- thereby creating an enormous administration burden, providing undue leverage to protestants, and diminishing the value of a thrift charter," Mr. Patrikis wrote. He noted that only one group had protested the merger.
Rather than a hearing, OTS made its approval contingent on AIG Bank providing a CRA plan by October. The OTS mandated that the plan explain how the Wilmington, Del., thrift will meet the lending, investment, and service requirements under the reinvestment law.
"We did receive a tentative business plan, but thought it would be more valuable to get a final business plan to allow full public comment on the formal CRA portion," an OTS spokesman said.
But [the] director of the community group Inner City Press/Community on the Move, the group that objected to the merger, said the OTS' reasoning "doesn't fly."
And we still don't think it flies...
Update of August 6, 2001: Following the Office of Thrift Supervision's "waiver" of its formal meeting regulations, on the evening of July 31, ICP put in a request to the Arizona Office of Administrative Hearings, to participate in the August 2 hearing on AIG's application to acquire American General's Arizona-domiciled insurance company, USLife Credit Life Insurance Company of Arizona. American General's high-rate consumer loans (as described below, interest rates up to 40%) are also packed with credit life insurance, an issue that ICP wanted to explore at the Arizona hearing. ICP faxed a detailed letter to the Administrative Law Judge who would be conducting the hearing, Lewis Kowal (click here for Judge Kowal's bio, and a photograph in which he appears strangely similar to -- "separated at birth" from? -- the actor / comedian Richard Belzer, of the TV shows Homicide and Law & Order: Special Victims Unit. We consider this fair comment, as Judge Kowal has compiled a "Top Ten" list about hearings, in the genre of another late-night comedian. Sometimes you have to laugh, to keep from... becoming nauseous, at regulatory capitulation).
On August 1, AIG's Arizona law firm submitted an opposition to ICP's participation at the hearing. The headings in the pleading give a sense of AIG's opposition to public participation: ICP "is barred on procedural grounds from intervening; ICP's Allegations Are Outside of the Department's Jurisdiction; the Request Incorrectly Focuses on American General Rather than the Petitioner;" etc..
ALJ Kowal issued an order that ICP's participation would be decided at a pre-hearing argument on August 2, by telephone. On August 2, ICP called in to the Office of Administrative Hearings. On the phone were AIG's general counsel Ernie Patrikis, another AIG lawyer, AIG's outside counsel, and two lawyers from American General in Houston. In the courtroom in Phoenix were two more AIG outside lawyers, and the Arizona Insurance Department's representative, Kurt Regner. This "pre-hearing" took over an hour. AIG's Arizona lawyer, David Childers, argued that the issues ICP was raising were "of a regulatory nature," and should not be considered at the hearing. Midway through, AIG's general counsel sought a "sidebar" with his Arizona lawyer; ICP stepped away from the phone to allow this to occur. An hour after the call began, ALJ Kowal ruled that ICP was not a "person affected," but stated that the issues ICP was raised were important, and that he would ask AIG questions about them during the hearing, which he invited ICP to remain on the line to listen to. He also ruled that the exhibits ICP had submitted would be made part of the record.
The hearing itself began with AIG's second Arizona lawyer, Steven Henry, questioning AIG's general counsel, as a witness. Mr. Patrikis made reference to "Hank Greenspan" (presumably, AIG chief executive officer Hank Greenberg); Mr. Patrikis recited his resume: 30 years at the Federal Reserve Bank of New York, and a time as an alternate member on the Federal Open Markets Committee. He stated that he had reviewed the application, and that it was all accurate. ALJ Kowal inquired into the status of AIG's other applications. Mr. Patrikis mentioned seven applications that had still not been approved: applications to the insurance departments in Florida, Texas, Pennsylvania, New York, Arizona and Indiana; and the application to the New York Banking Department. He stated that NYID approval was expected "by the end of the week," and that Texas was taking longer, because American General is headquartered there. "I am aware of no other hearing," Mr. Patrikis said. "This will be the last one." He added that the companies "plan to close on or just after August 15... That's the plan I'm working under."
When it was the Department's Mr. Regner's turn to ask questions, the hearing moved beyond the scripted Q&A: Mr. Regner asked about the change in American General's single premium credit life insurance practices, first announced in AIG's July 19 letter responding to ICP's comments. Mr. Patrikis emphasized that this had been a decision by American General, but stated that AIG would not go back on the decision (Mr. Patrikis added that he had not, to date, spoken to Hank Greenberg about it).
Mr. Regner asked about another exhibit that ICP had submitted -- -- reflecting that an insurance company long owned by American General had written insurance policies on the lives of slaves, in the mid-1800s. This is an emerging issue in insurance regulation; California has passed a statute requiring disclose of such information, analogizing it to inquiries by the Federal Reserve Board and others into insurance companies practices during the Holocaust. Mr. Patrikis said that it had been "brand new information" to him, and that, upon seeing it, he'd spoken with two American General officials (the company's general counsel and its EVP for government affairs), and that they had been unaware of it, as well.
"Will AIG be responsible for any findings?" Mr. Regner asked. "Yes," Mr. Patrikis answered tersely.
Next, ALJ Kowal asked questions, explicitly based on ICP's filings. He asked Mr. Patrikis is AIG had become aware of the allegations of abusive credit life insurance practices at American General, during its due diligence. Mr. Patrikis responded, among other things, that it was his sense that American General had had problems in the past, but that in the "past three to five years," compliance has been taken (more) seriously. Mr. Patrikis stated that he was "troubled" by criticisms of subprime lending, and advised ICP to "go to legislatures." ALJ Kowal cut him off, saying the purpose of the hearing was not to advice ICP "where to go."
ALJ Kowal asked if due diligence had revealed that African Americans were being targeted with allegedly improper credit insurance by American General. Mr. Patrikis responded: "I have no information on that... I don't know if it's speculation... We are cognizant of reputational risk," he added. The hearing petered out. At the end, ICP spoke up, stating that it had been made aware that American General had previously been asked about the issue which it now claimed to be hearing for the first time.
"You can note it, but I'm striking it," ALJ Kowal said. The call was over.
That evening, ICP submitted its exhibits to the NYBD and the six above-named insurance departments. The following day, AIG's Mr. Patrikis wrote to the NYBD, in the most over-charged letter of the proceeding to date. "The allegations," Mr. Patrikis wrote, "relate to a sad and deplorable chapter in American history and are flung irresponsibly by ICP purely in an effort to present morally shocking charges to further its agenda in lieu of relevant and substantive arguments. ICP should be condemned for its shameless use of these inflammatory tactics and its callous disregard of the gravity of these historical events." Apparently, it would be less callous, and more appropriately respectful, to submit no comments at all...
We will return to the OTS' July 31 late-night "waiver" of its formal meeting regulations in our next Update. Developing... For or with more information, contact us.
Update of August 1, 2001: After nine p.m. on July 31, Inner City Press / Community on the Move (ICP) received a telephone call and fax from the Office of Thrift Supervision, stating that the OTS "hereby waives the formal meeting provision of 12 C.F.R. § 516.180(a)," and that the OTS had just approved AIG's applications to acquire American General and its savings bank. As recounted below, ICP had submitted a detailed challenge to AIG's application, had been granted an "informal meeting" by the OTS, and had a right to a formal meeting, on predatory lending, Community Reinvestment Act and other issues. But the OTS, under pressure from AIG, suddenly "waived" its regulations.
There was no precedent for the OTS to, after granting an informal meeting under § 516.170 and receiving a timely request for a formal meeting, simply waive the applicability of the regulation. ICP asked if AIG had shown any emergency, or ANY reason beyond the mere desire to consummate the acquisition on August 15, to trigger this unprecedented waiver of the formal meeting regulations. No reason was provided.
In essence: the rules are the rules, until they are inconvenient to AIG. Then the rules are waived.
The OTS, in telephoning ICP on Tuesday evening, made much of a "condition" it imposed on the approval: that AIG must file, within 90 days, a plan for meeting its Community Reinvestment Act responsibilities, and must publish public notice of the right to comment on the plan. Ironically, this condition (#11 in the approval order) provides that if ICP "requests an informal or formal meeting regarding the filing, OTS will grant such requests." A cynic would say: yeah -- unless the OTS waives the regulation again...
What the OTS has tried to do is to defer the consideration of CRA -- which is only enforced in connection with merger applications -- until after AIG consummates its merger. To accommodate AIG, the OTS decided, without precedent, to "waive" its formal meeting regulations, but promises to follow them on AIG's non-time-sensitive CRA Plan filing in three months' time. ICP stated, and maintains, that this is one of the clearest and most troubling examples of regulatory capitulation to a large and aggressive financial institution it has seen.
On Sunday, July 29, ICP submitted its timely request for a formal meeting, and uploaded it to this page (Update of July 30, below). On the morning of July 30, ICP received a copy of a letter AIG's general counsel Ernest Patrikis had directed to three senior officials at the OTS's Washington office. This letter did not ask for a waiver of the formal meeting regulations -- rather, it attempted to argue that despite the language of the regulation (quoted below), no formal meeting should be held, because it would "greatly diminish the value of the thrift charter," among other things.
Late on July 30, ICP replied to AIG's letter, again quoting the regulations and citing to prior OTS precedents, and raising concerns about the pressure AIG was applying to the OTS. ICP's July 30 letter is reproduced below.
Significantly, AIG never even purported to respond to the issues raised in ICP's 26 page timely request for a formal meeting. These included an analysis of the Home Mortgage Disclosure Act (HMDA) data of MorEquity, for which American General's 1998 correspondence to the OTS requesting a thrift charter sought Community Reinvestment Act credit, and additional American General Finance loan files. ICP had previously submitted documents reflecting American General Finance loans made at 40%, 36% and 32% interest. On July 19, in a response to ICP's comments to the New York Banking Department, AIG said it and American General will be dropping single premium credit insurance by August 31, 2001. But nothing else has been fixed, or even addressed by AIG.
The OTS' Web site stated that the Decision Due Date was October 3, 2001. The OTS granted ICP's request for an informal meeting, but then, after pressure from AIG, gave ICP only 24 hours notice of the day, time and format of the informal meeting. At the informal meeting, AIG's general counsel said, "there is nothing to correct, I don't see any problems," after discussion of the 40%, 36% and 32% interest rate loans. AIG's CEO, in a July 26 press release, stated that he anticipated all approvals by the end of August. AIG had informed numerous state insurance department that it desires all approvals before August 15, so that American General's shareholders can vote on an already-approved deal, and so that it could be consummated immediately thereafter.
The OTS' July 31 letter to ICP cites 12 C.F.R. §516.20(a), promulgated without fanfare in 1987, which says that "the Director may, for good cause and to the extent permitted by statute, waive the applicability of any provision of this chapter." This section was not even cited in AIG's pressure-letters to OTS Washington officials. Perhaps because this is not the intended use of the provision: to void at will any other regulation. The OTS' letter to ICP, and approval order, do not mention any "good cause;" it would also appear that the OTS' lawless act violates "statute," including the Administrative Procedure Act (and the CRA...). The OTS should have disclosed, in its below-quoted 1997 press release announcing its formal meeting regulations, that they could be waived at any time... We must ask: what will be waived next?
The New York Banking Department on July 26 asked AIG twelve detailed comments about American General's lending practices, following ICP's comments. ICP quoted these questions in its request for a formal meeting, and said it would be presenting and discussing AIG's responses at the formal meeting.
And then, after close of business on July 31, the OTS "waived" the formal meeting regulations, and approved AIG's application. This unprecedented and lawless maneuver not only turns the formal meeting regulations that the OTS announced in 1997 into a joke, that can be waived at any time -- it also, simply for AIG's convenience, ignores the other agencies' policy of considering alleged predatory lending by bank affiliates (for example, the Federal Reserve on Citigroup - EAB; the FDIC, OCC and NYBD on Citigroup - Associates). ICP stated to the OTS, and maintains, that the OTS's July 31 decision to "waive" the formal meeting regulations, and ignore the CRA and predatory lending issues timely raised, and not addressed by AIG, is one of the clearest and most troubling examples of regulatory capitulation to a large and aggressive financial institution it has ever seen.
Below is ICP's reply to AIG's July 30 letter, which ICP faxed and e-mailed to the named individuals at the OTS, and to outgoing OTS Director Ellen Seidman. After the change in Administrations, Ms. Seidman was asked to resign, and the new Administration identified a nominee to succeed her: James Gilleran. Mr. Gilleran has not yet been confirmed. ICP's letter below notes that, to change the OTS' regulations, the next Director should propose and put out for comment a revised regulation. But apparently, in the interim, for AIG, the OTS simply "waives" its regulations. Beyond that, why the OTS decided to waive its formal meeting regulations for AIG... we'll leave to cooler minds, for now. AIG still needs approvals from the New York Banking Department (where its response to the NYBD's below-quoted questions are due on August 2), and the Arizona Department of Insurance. Developing... For or with more information, contact us.
July 30, 2001
VIA TELECOPIER and E-MAIL
Office of Thrift Supervision
Northeast Regional Office
Attn: Regional Director Robert Albanese
Mr. Brian S. Steffey, Mr. Tom Barnes, Mr. Ray Coons, and Mr. Tom Smith
10 Exchange Place, 18th Floor
Jersey City, NJ 07302
Office of Thrift Supervision
Attn: Scott M. Albinson, Managing Director
Carolyn S. Buck, Chief Counsel
Richard M. Riccobono, Deputy Director
[& Ellen Seidman, Director, by e-mail]
1700 G Street, N.W.
Washington, D.C. 20552
Gentlemen and Ms. Buck [and Director Seidman]:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this letter supplements ICP's timely request for a formal meeting under 12 C.F.R. Section 516.180 on the Applications of American International Group, Inc. ("AIG") to acquire American General Bank, FSB and its affiliates, and to merge American Banker Bank, F.S.B. into AIG Federal Savings Bank.
We have received a copy of AIG's general counsel's July 30 letter, arguing that contrary to the Office of Thrift Supervision's ("OTS's") regulations at 12 C.F.R. §§516.170 and 516.180, contrary to the OTS' preamble when it promulgated those regulations in 1997, contrary to the OTS' 2001 preamble to its Applications Processing regulations, and contrary to previous OTS precedent under the regulations, no formal meeting should be held in this case. We were surprised to see that AIG had directed its letter to OTS/DC; it was our understanding that decision-making on AIG's applications was "delegated" to OTS/NE. The OTS' Web site, as of July 30, still lists it as such (and states that the Decision Due Date is October 3, 2001). We trust that OTS/DC has copies of ICP's July 2, 22, 23 24 and 29 submissions, which were directed to, and have been received by, OTS/NE.
We will not again quote the regulations or preamble: that was done in our July 29 timely request for a formal meeting. Rather, in light of irregularities in this proceeding to date (including the scheduling of the informal hearing on only 24 hours notice, despite ICP's objections, and other irregularities identified infra), we will first reply to AIG's July 30 arguments.
AIG's July 30 letter was submitted, it appears, prior to AIG's review of ICP's timely formal meeting request. We faxed that request, 26 pages of text, and 32 pages of exhibits, to the OTS and to AIG on the evening of July 29, and e-mailed the text to OTS/NE and to AIG's general counsel, for his convenience. Nevertheless, AIG begins its July 30 letter by characterizing ICP's submission of its request three business days after the rushed informal meeting, on a timeline permitted by the OTS' regulations and confirmed by OTS/NE staff, as ICP's "usual dilatory tactics." Id. at 1. Thereafter, AIG argues in essence that it would be a "poor OTS precedent" for the OTS to follow its regulations, and prior precedents, in this case. ICP's short response on this point is that for the OTS to change its regulations, it must begin a rulemaking proceeding, accept public comment, and issue a new and final regulation. Existing regulation and precedent should not and cannot legitimately be overturned for the convenience of a particular applicant, regardless of their aggressiveness or asset size.
ICP and other community organizations, including the coalition NCRC, on whose board of directors I sit, commented to the OTS in 1997 prior to the adoption of the current Sections 516.170 and 516.180. Those sections replaced the OTS' prior regulations, regarding "oral argument." The OTS in 1997, after comment for community organizations and the industry, consciously and publicly chose to adopt informal and formal meeting procedures different than those of the other federal financial regulators. For that reason, AIG's citation to the procedures of the FRB, for example (id. at 5-6), is simply inapposite.
ICP has gone back and reviewed (and directs AIG and the OTS to) the press release that the OTS issued, on December 4, 1997, announcing its final rule. Significantly, this OTS press release devoted two of its six paragraph to the informal and formal meeting procedure, stating in those two paragraphs that:
Meetings -- both formal and informal -- between OTS, an applicant and commenters are specified in the final rule. The meetings' provisions are among several changes made since the rule was proposed in the April 9, 1997, Federal Register.
The final rule provides that OTS will conduct an informal meeting if a commenter has filed a written request and identifies the issues or facts to be discussed and the reasons why written submissions are insufficient. OTS also may arrange an informal meeting on its own initiative. Informal meetings can take any form, including face-to-face meetings or conference calls. If issues remain unresolved following an informal meeting, OTS will hold a formal meeting before a presiding officer upon the request of anyone who participated in the informal meeting.
The press release does not equivocate, stating that "if issues remain unresolved following an informal meeting, OTS will hold a formal meeting before a presiding officer upon the request of anyone who participated in the informal meeting." The OTS knew at that time that this procedure was different than that of the other agencies; the OTS highlighted the informal and formal meeting procedure in its 1997 press release, devoting two of six paragraphs to it. The language is clear; the March 2, 2001, OTS Federal Register publication explicitly did not change the standard; and it is impossible to conceive that ICP's detailed comments and timely request, which inter alia raise and contest straight (forward) CRA issues, and raise HMDA data to which AIG has not even replied, do not meet this standard.
AIG claims that granting ICP's timely, detailed request for a formal meeting "would establish a clear precedent that any party may cause the OTS to call a formal meeting, regardless of the merits of the allegations brought." Id. at 1. That is not true. The OTS has stated that requests for informal meetings that are "clearly frivolous" will not be granted, and a party cannot request a formal meeting if it has not, first, been granted an informal meeting. ICP has already (obviously) passed that standard: following the submission of ICP's 12 page July 2 comment, the OTS indicated it would hold the informal meeting requested therein. The issues ICP has raised cannot now be determined to be frivolous, particularly not after ICP has submitted even more detailed comments, tied directly to the Application and applicable law and regulation. AIG's claim is simply untrue: "frivolous" requests for informal meetings are not granted.
In fact, ICP has already passed another of the standards that AIG now cites. The Federal Register of December 4, 1997 (Volume 62, Number 233), Application Processing, stated clearly that
To ensure that the OTS will have sufficient notice of the questions to be discussed at the informal meeting, requests should describe the nature of the issues or facts to be discussed and the reasons why written submissions are insufficient to adequately address these facts or issues....
Accordingly, in its determination to grant ICP an informal meeting, the OTS already acknowledged that ICP had passed the test that AIG is now citing to: that "written submissions are insufficient to adequately address the[] facts or issues." At the informal meeting, one of the applicants' counsels misstated whether American General loan files ICP has submitted were or were not real estate-secured loans; none of AIG's representatives addressed, much less resolved, the straight (forward) CRA issues ICP raised, including without limitation the needed update on American General's CRA performance, including in light of its 1998 commitments, and whether AIG has in fact conducted the outreach and other activities committed to in its March 1999 CRA plan. Since the OTS already determined that ICP passed this test (that "written submissions are insufficient to adequately address the[] facts or issues"), and since these issues were not even arguably resolved at the informal meeting, ICP clearly passes this test, as (and if) it applies to ICP's request for a formal meeting.
In fact, the regulation specifies a lower standard than the above-quoted, for formal meeting requests. 12 CFR § 516.180(a) provides that "[t]he OTS will grant all requests for a formal meeting filed under § 516.170(e)," which in turn states that "[w]ithin three days after the informal meeting, any participant in the informal meeting may request the OTS to hold a formal meeting... The participant should describe the nature of the issues or facts to be presented and the reasons why a formal meeting is necessary to make an adequate presentation of the facts or issues." The standard for informal meetings (articulated in the 1997 preamble) is that written submissions would be insufficient." The standard for formal meetings, articulated in Section 516.170(e) itself, is less specific, and lower: "why a formal meeting is necessary to make an adequate presentation of the facts or issues." Without limitation, a formal meeting is necessary because (1) AIG was not prepared to address the issues ICP had raised, at the informal meeting; (2) the informal nature of the informal meeting allowed AIG to not answer the questions, and the meeting was not recorded or transcribed for the ultimate decision-makers, whether Regional Director Albanese or OTS/DC; (3) the issues, including even straight (forward) CRA issues, were not resolved at the informal meeting -- several of them were not even addressed by AIG; (4) ICP is requesting a more formal proceeding, in order to introduce evidence inter alia on AIG's failure to comply with commitments in its 1999 CRA plan; etc..
Most dispositively, the above-quoted 1997 OTS preamble stated that
if an informal meeting fails to facilitate the resolution of issues to the satisfaction of any participant in an informal meeting, the final rule provides that the OTS will conduct a formal meeting before a presiding officer upon the filing of a request...
As ICP noted, and explained, at the informal meeting and in its timely request, the "informal meeting fail[ed] to facilitate the resolution of issue to the satisfaction" of ICP, a "participant in [the] informal meeting." The above-quoted OTS statement, in promulgating the applicable regulation, makes it clear that the formal meeting which ICP has timely and in detail requested must be held.
As an aside, ICP is concerned that AIG now directs its arguments to OTS/DC personnel, who did not participate in the July 25 informal meeting (the only basis on which one could even theoretically determine that issues were "resolved" at the informal meeting). Nor does ICP believe that a recording or transcript was made of the informal meeting. During the informal meeting, Mr. Barnes appeared to acknowledge that the issues had not been resolved. In fact, Mr. Barnes asked AIG how the issues COULD be resolved, and AIG's general counsel respond that he saw nothing to resolve, nothing to correct, nothing to discuss. Particularly given AIG's approach to and at the informal meeting, to grant AIG's request to ignore the regulations and not hold a formal meeting would be tantamount to repealing the OTS' 1997 informal and formal meeting procedures regulation.
Moving along in AIG's July 30 letter: the OTS' regulations make no reference to the number of parties requesting informal or formal meetings. ICP was granted such meetings by the OTS last year in a case where it was the only requester. Additionally, I stated at the informal meeting and in ICP's request for a formal meeting that I have communicated with the director of the Delaware Community Reinvestment Action Council ("DCRAC"), and DCRAC states that AIG has not, in DCRAC's experience, conducted the outreach that was promised in AIG's March 1999 CRA plan. The time to present witness lists has not yet arrived. AIG's argument about the number of requesters is, under the regulation and the OTS' precedents, meritless.
AIG then raises the specter of "former employees, parties to pending litigation with the applicant and others" making, at some future date, requests for formal meetings. The OTS conducted a full rulemaking proceeding before adopting the current informal and formal meeting rules. The time to consider this alleged danger was then. Significantly, while ICP has been granted two formal meetings under the current regulation, ICP is not aware of any flood of similar requests from former employees, litigants, or anyone else. This AIG argument is self-serving fear-mongering, that has no basis in fact.
AIG attempts to argue that the OTS' regulations "diminish[] the value of the thrift charter" by "extending the processing periods for applications by weeks on end." Id. at 2. First, the OTS adopted these regulations after a full rulemaking proceeding -- in fact, AIG and American General obtained their thrift charters AFTER these regulation were in place. Second, AIG submitted these applications less than two months ago. As reported in the American Banker of July 30, 2001 (and simply as one example), the FRB recently reviewed Citigroup's application to acquire European American Bank for over four months. The OCC and FDIC extended their comment periods and review periods on Citigroup's Change in Bank Control Act notices to acquire Associates credit card banks -- proceedings in which the CRA did not even apply. AIG's arguments about timing, and the "value of a thrift charter," are disingenuous.
AIG's presentation of and argument about the regulation are similarly disingenuous. The OTS in 1997 consciously chose, after public comment including from the industry, to adopt informal and formal meeting procedures different than the other federal regulators. The OTS noted that in its preamble, and was congratulated by community organizations for doing so. AIG tries to imply that the March 2, 2001, OTS notice regarding Applications Processing changed 12 CFR §516.170(e) -- see id. at 4 -- but, as ICP quoted in its July 29 request, it did not. AIG now tries to argue that the language adopted in 1997 meant, in fact, that the OTS has adopted the same standards and procedures as the FRB (hearing only if requester shows that written submissions are insufficient). But as the OTS 1997 preamble and regulation shows, and as various senior OTS personnel have told community groups, the OTS' standards and procedures for informal and formal meetings are different than the other agencies. If the OTS at some future date wishes to amend its regulations, it will begin a rulemaking proceeding. But it cannot be done simply for the convenience of a particular applicant -- one that was free, by the way, to comment on the regulations in 1997, and in 2000-01.
In its March 2, 2001, Federal Register publication, the OTS stated that it "did not propose changes to the formal and informal meeting procedures in Subpart D" and, later that it " has not revised the informal meeting process." The only language in the 2001 preamble that AIG could even conceivably be latching on to is footnote 10, which reads, in its entirety:
n10 OTS will not arrange an informal meeting, however, where a request is clearly frivolous or clearly lacking a factual basis. With respect to formal meetings, OTS will conduct a formal meeting when a request is filed under § 516.170(e). A request under § 516.170(e) must demonstrate that material issues or facts have not been adequately addressed by the informal meeting and that a formal meeting is necessary to develop a record sufficient to support a determination on those facts or issues.
In granting ICP's informal meeting request, the OTS found that ICP's July 2 comments met the applicable standard. Since the July 2 submission, ICP has put into evidence (and into question) more issues, including (after reviewing the Application) straight-forward CRA issues, such as AIG Bank's compliance with commitments in its 1999 CRA Plan, and American General's performance under commitments it made to the OTS while applying for a thrift charter. We note again that while applying for a thrift charter, American General explicitly sought CRA credit for lending of a subprime lending affiliate, MorEquity. For this and other reasons, and under the precedents of the agencies (in Citi - Associates; for the OTS, notably, on Lehman Brothers emergency application to acquire Delaware Savings Bank), the issues ICP has raised are material, and it is indisputable that they were not resolved at the informal meeting. ICP will be presenting further evidence on these issues at the timely requested formal meeting.
In light of AIG's accusations that ICP is engaged in dilatory tactics, etc., it is significant that the OTS, in its March 2, 2001, Federal Register preamble, stated that "[w]hile [a] commenter feared that some individuals or community groups may request an informal meeting solely to suspend the application processing time periods, OTS knows of no situation where this has occurred."
AIG's July 30 argument at 4-5 ignores that ICP has raised disputed questions about the "straight" / conventional CRA records of AIG Bank and American General's thrift. Without limitation, ICP has contested that AIG Bank has implemented the commitments in its March 1999 CRA plan. It is also striking that all AIG submitted with its application (on CRA) was this two and a half year old CRA plan, the last page of which still says "proposed." Nor do AIG's July 26 or July 30 submissions purport to resolve or even address these issues. ICP has also raised that American General, in applying for a thrift charter, explicitly referenced and sought CRA credit for the lending of its subprime lending affiliate MorEquity. (For the record, ICP now for the third time notes and incorporates herein by reference American General's 1998 letter to the OTS stating that American General's thrift "proposes initially to offer its mortgage products on a nationwide basis through its affiliate, MorEquity." AGF 1998 Letter at 7. MorEquity is an American General subprime lending affiliate).
In essence, AIG is arguing for a form of "safe harbor" that the agencies, including the OTS, explicitly rejected in promulgating the current CRA regulation (and that Congress declined to pass, despite Sen. Phil Gramm's request, in the Gramm-Leach-Bliley Act). AIG's proposed safe harbor would be even wider than the one previously proposed, and rejected, by the OTS and Congress: because an institution has been chartered, there can be no disputed issues (see id. at 5).
AIG also argues that because it has received other regulatory approvals, the OTS cannot hold a formal meeting. ICP notes that most of the referenced approvals were by state insurance regulators in proceedings in which members of the public virtually never appear. AIG claims that some of the approvals somehow validate or resolve questions about AGFI. First, AIG is still withholding the list of regulatory approvals its submitted, along with a request for confidential treatment, on July 19. Second, the only state regulator of AGFI to which ICP raised issue has now asked AIG twelve detailed questions about AGFI's and AIG's practices (the questions were quoted in ICP's July 29 request for a formal meeting).
AIG's citation to FRB proceedings, under entirely different public hearing standards, is inapposite. ICP notes that a number of state insurance regulators held or will hold hearings on AIG's American General-related applications. By AIG's logic, that militates for the OTS holding the timely requested formal meeting (which in any event is required, on the current record, under the OTS' regulations and prior precedents). AIG concludes by characterizing the OTS' regulations and prior precedents as "cavalier" (id. at 8), and claiming that the OTS' 1997 regulation "greatly undermine[s] the attractiveness of the thrift charter." If that were true, why did AIG seek and obtain a thrift charter AFTER the OTS promulgated its 1997 regulations? And why, following the FRB's four month-plus review of Citigroup - EAB, haven't banks converted to state non-member status? Why wasn't there an exodus from the thrift charter after the OTS' grant of a formal meeting in response to ICP's two prior requests under the regulation?
What amazes ICP is that AIG has chosen, following ICP's July 2 and 23 comments, at the informal meeting, and since, to not even purport to address straight (forward) CRA issues that ICP has raised, but rather to direct arguments to OTS/DC that the current regulation should be ignored, or terrible things will happen -- a flood of former employees, for example, or a great diminishment of the value of the thrift charter.
At the informal meeting, and consistent with the regulation and preamble, OTS staffer Thomas Barnes sought to focus the discussion, even asking, "how can this be resolved?" AIG's general counsel responded, "I don't see any problems... There is nothing to correct." This was an approach different than ICP noted in previous informal meetings in which it has participated; it is also different than, for example, the approach adopted by (even) Citigroup, when it was applying to acquire Associates First Capital Corp. and its banks, in proceedings to which CRA did not even apply. ICP does not need to make a fear-mongering or speculative argument about what precedent it would set, for the OTS to follow its regulations and prior precedents. But, if ICP were to make such an argument, it would note that it would be a "poor OTS precedent" to violate the regulation for an applicant which didn't submit a CRA presentation any more recent than two and a half years old, didn't submit any update on compliance with previous CRA commitments, didn't respond to straight (forward) CRA issues when they were raised, and did not even pretend, at the informal meeting, to attempt to resolve anything.
ICP would further note that to adopt the misreading of Section 516.170(e) and the 2001 preamble that AIG is presenting would render the OTS' 1997 decision to adopt informal then formal meetings meaningless, would violate the letter and spirit of the 1997 regulation (and the spirit of senior OTS officials' statements at that time and since to community organizations), and would be lawless behavior to the benefit of a particularly arrogant (perhaps "aggressive" is a better word) applicant, that was on notice of the 1997 regulation before applying for a thrift charter, has been on notice of the issues ICP is raising since at least July 2, and chose, itself, to make a woefully insufficient presentation in its application, even on straight (forward) CRA. A CRA plan two and a third years old, with no update; no update on previous CRA commitments.
AIG's application states that the proposed merged thrift would operate under two CRA plans (only one of which has been provided to ICP), and that, some months later, a new and combined CRA plan would be submitted. ICP notes that the other agencies routinely require merger applicants to state which banks' CRA programs and policies they will retain. It has been implied to ICP that the OTS might require public notice of a later (merged) CRA Plan. For the record, it is ICP's position (as confirmed by a Department of Justice Office of Legal Counsel opinion letter directed to then-Comptroller of the Currency Eugene Ludwig in connection with the 1994 CRA regulation) that CRA is only enforced on mergers. It is illegitimate, and a "poor CRA precedent," to split off CRA from the merger review process. That, to use AIG's phrase, would be a "poor OTS precedent."
AIG is asking the OTS to overrule, in this proceeding, its 1997 informal and formal meeting regulation. If ICP's detailed comments (combined with AIG's non-responses) don't meet the OTS standard that AIG proposes, what would? For the record, ICP devoted significantly more time to its July 29 formal meeting request than any previous such request to the OTS (both of which were granted). Now, ICP has had to respond, overnight, to AIG arguments directed to OTS/DC. AIG appears to believe that only community groups with resources similar to its own should be able to request and obtain the formal meetings provided for in the OTS's 1997 regulation. Particularly on this record, it would be "poor OTS precedent" -- and more -- to accept AIG's argument.
What is the basis, or reason, for AIG's heated requests to OTS/DC that the OTS overrule its currently applicable regulation, ignore its statements in the Federal Register and to community groups, and its prior precedents? AIG wants to consummate its deal as quickly as possible. AIG stated in a July 26 press release -- AFTER the informal meeting -- that it anticipate having all regulatory approvals by the end of August. (As noted, ICP has been informed that AIG that same day told the Wisconsin insurance regulator that it expects to have all approvals by August 15). But not only are the OTS' formal meeting regulations, and precedents thereunder, clear -- the OTS' own Web site states that the Decision Due Date in this matter is October 3, 2001. AIG was on notice; ICP questions on what basis AIG's CEO claimed, in AIG's July 26 press release, that AIG expects to have all regulatory approvals by the end of August.
We are compelled to address one additional matter. Director Seidman's July 3, 2001, letter to the White House states that "you have asked for my resignation," and also notes that "both the Director and the agency also were given by statute a great degree of independence and explicit protection against interference in regulatory and supervisory decisions." Frankly.... we are concerned that AIG's arguments are as much political as they are legal. (This is particularly true because AIG's legal arguments, in light of the 1997 regulation, the 1997 and 2001 preambles, and the OTS' prior precedents, are so weak, see supra). And so, for the record:
If a new OTS Director, appointed by the current Administration and confirmed by the Senate, wishes to change the OTS' 1997 regulation concerning informal and formal meetings, the way to do that is through a rulemaking proceeding, not by starkly reinterpreting (and violating) the existing regulations, and throwing overboard prior OTS precedents, at the request of a single applicant, no matter how aggressive or influential.
Pardon the tone of this letter, but AIG's July 30 references to ICP's "usual dilatory practices" and purportedly "indiscriminate" public commenting, as well as AIG's general counsel's statements at the informal meeting (e.g., "there is nothing to correct"), combined with AIG's pressure (which prevailed) to hold the informal meeting on only 24 hours notice, and now AIG's blatant attempt to get the OTS/DC to overrule, under increased pressure, its existing regulations and prior precedent, are of much concern.
If OTS/DC (or OTS/NE) has any doubt, despite the regulation and the record in this case, about granting ICP's timely request for a formal meeting, we ask to be contacted, so that we can make a further submission, or otherwise address the unprecedented legal thinking that AIG is urging the OTS to adopt. We have submitted more detailed comments, more evidence, and a more detailed request for a formal meeting than we did in two previous OTS proceedings under the same, unamended regulation, both of which were granted. It seems clear to us that ICP's request must be granted; while we have spent more time, and submitted more evidence, than ever before, we feel it would be legitimate to rely on previous OTS precedent, in the absence of any amendment to the regulations that applied then, and apply now. So, again, if there is ANY QUESTION, or novel legal theory, regarding whether or not to grant ICP's timely request for a formal meeting, we ask to be notified and allowed to address these surprising questions, and this unprecedented re-reading of the OTS' 1997 regulations.
I can be reached at ICP's offices at (718) 716-3540. Thank you for your attention.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
cc: Ernest T. Patrikis, Esq.
American International Group, Inc.
NOTE: This page will be updated. For or with more information, contact us.
* * *
Update of July 30, 2001: The week of July 23-29 was an active one, as regards AIG's applications to the Office of Thrift Supervision and to the New York Banking Department to acquire American General. On July 24, the OTS informed ICP that it would be holding the requested "informal meeting" on AIG's application the next day, July 25. ICP complained that this was less than reasonable notice, that AIG would not, in all probability, have been able to sufficiently inquire into the high-rate American General loans which ICP put into the record on July 23, and that the only plausible explanation for this timing was AIG's desire to start the clock running on the OTS' formal meeting process.
The OTS informal meeting was held from 2 to 3:30 p.m. on July 25. AIG's representative, Ernest Patrikis, stated with regard to American General's lending practices that "I won't see the problems... there is nothing to correct." Some of the loan documents ICP submitted are for loans at 40% and 36% interest... Another of the applicants' lawyers, Jeffrey Naimen of Goodwin Proctor, claimed that all of the loan documents ICP had submitted were for non-real estate secured loans; the OTS then pointed to ICP-submitted loan notes for real estate secured loans. Some of the issues discussed are summarized in ICP's request for a formal meeting, summarized below. As noted therein, it is clear under the OTS' regulations and prior precedents that a formal meeting must be held in this case. Furthermore, following the OCC's and FDIC's inquiries last Fall, when Citigroup applied to acquire Associates' credit card banks, into the practices of these banks' affiliates, and more clearly, in light of American General's citation in filings with the OTS to its subprime lender MorEquity, when it was applying in 1998 to charter the savings bank that AIG is now proposing to acquire, it is clear that the predatory lending issues raised must be within the scope of the formal meeting. Additionally, the NYBD on July 26 asked AIG a series of 12 questions, quoted below in ICP's request for a formal meeting.
July 29, 2001
Regional Director Robert Albanese, Mr. Tom Smith, et al.
Office of Thrift Supervision, Northeast Regional Office
10 Exchange Place, 18th Floor
Jersey City, NJ 07302
Dear Regional Director Albanese, Mr. Smith, et al.
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a timely request for a formal meeting under 12 C.F.R. Section 516.180 on the Applications of American International Group, Inc. to acquire American General Bank, FSB and its affiliates, and to merge American Banker Bank, F.S.B. into AIG Federal Savings Bank. This letter, along with ICP's previous comments and the material incorporated hereby by reference, described the nature of issues and facts to be presented at the formal meeting, and the reasons why a formal meeting is necessary to make an adequate presentation of the facts and issues. In summary, and without limitation, ICP will discuss the Community Reinvestment Act ("CRA") performance of each thrift, including AIG Bank's failure to actually implement the programs it presented to the OTS in 1999, and failure to even update its CRA Plan for the last two and a third years. ICP notes and incorporated herein by reference American General's 1998 letter to the OTS stating that American General's thrift "proposes initially to offer its mortgage products on a nationwide basis through its affiliate, MorEquity." AGF 1998 Letter at 7. MorEquity is an American General subprime lending affiliate.
ICP will discuss American General's subprime consumer finance activities, including without limitation lending, servicing and debt collection. ICP has already, in its previous written comments, submitted information in this regard, which, as set forth below, AIG has not appropriately addresses, and in many instances has simply ignored. AIG's General Counsel's statement, at the informal meeting, that "there is nothing to be corrected... I don't see [any] problems" was, in light of the information already submitted, extremely troubling. Only a more formal proceeding, at which the Applicants respond to (rather than evade) questions, and at which ICP can present and discuss evidence, will allow an adequate presentation of the facts and issues, as further discussed below.
Again without limitation, ICP will at the formal meeting discuss AIG's and American General's managerial resources, including without limitation (as to AIG) its mortgage insurance entity United Guaranty, and, more generally, AIG's CEO's July 26 statement, in a widely disseminated press release, that "AIG's Consumer Finance Group continues to grow... American General's significant presence in domestic consumer finance will add materially to the overall scope of AIG's worldwide consumer finance business," and other statements in AIG's July 26 press release. We will also be discussing, and presenting, information from the Applicants required responses to the New York Banking Department ("NYBD") questions of July 26, which are quoted below in this letter. As explained below, the NYBD's July 26 questions confirm that the record is nowhere near complete on this proposal. ICP urges the OTS to ask similar and additional questions; ICP incorporates the attached question letter herein by reference, explicitly as issues that ICP intends to discuss at the formal meeting, and about which it cannot make an adequate presentation at this time, and can only, in fact, make an adequate presentation at the formal meeting, which is now required, under the OTS' regulations, the preamble thereto, and the OTS' precedents (each of which is discussed below).
This request is timely...ICP confirmed this time line with OTS staff on July 27, and is transmitting this timely request on Sunday, July 29, 2001.
As you know, ICP submitted a preliminary comment opposing the Applications, and requesting an informal meeting thereon, on July 2, 2001. By letter dated July 6, 2001, your Office stated inter alia that it would schedule an informal meeting under 12 C.F.R. § 516.170 after ICP submitted further comments on July 23, 2001.
On July 23, ICP submitted a detailed supplemental comments, and exhibits, in further opposition to the Applications. On July 24, the OTS informed ICP that the informal meeting would be the next day, July 25. ICP stated, orally and in writing, that it did not believe that 24 hour notice constituted the "reasonable time in advance of the informal meeting" specified in §516.170(c). ICP's July 24 letter to your Office stated "[i]t seems clear that the timing of this unprecedentedly fast-scheduled informal meeting is being driving by AIG's desire to obtain approval as quickly as possible, and not by any 'reasonable' (to use that word again) attempt to narrow or clarify issues, much less resolve them. We were surprised by the cavalier attitude adopted in AIG's July 19 response to ICP's preliminary comment, where documented consumer compliance and debt collection violations at American General are characterized by AIG as "irrelevant" and even as "clearly frivolous and clearly lacking a factual basis." AIG July 19 Resp. at 4. Following the submission of our even more detailed timely July 23 submission, AIG's (and the OTS's) push for the informal meeting a mere 48 hours after the submission, on a mere 24 hours notice, is even more surprising."
Nevertheless, the informal meeting was held on July 25, 2001. At the informal meeting, ICP was again struck by the Applicants' cavalier attitude toward the consumer compliance, reputational risk and Community Reinvestment Act ("CRA") issues raised. One of the Applicants' counsel initially claimed that all of the loan documents ICP had submitted involved non-real estate secured loans; this was and is not the case. With regard to consumers loans made at the nearly unheard of rates of 40% and 36%, AIG's general counsel argued that these complied with state law; regarding this and the other issues ICP has raised, AIG's general counsel stated inter alia: "I don't see the problems... There is nothing to be corrected."
At the conclusion of the informal meeting, ICP made clear its intention to request a formal meeting, and asked the OTS to expedite its processing of ICP's Freedom of Information Act ("FOIA") appeal for portions of the Applicants' submissions which ICP contends the Applicants' have improperly requested confidential treatment.
On July 26, AIG submitted a seven-page letter, purporting, after the informal meeting, to address matters raised in ICP's July 2, 22 and 24 letters. For reasons sketched below, and to be further elaborated on at the formal meeting, we are unconvinced by AIG's July 26 responses.
Since AIG continues to argue that many of the lending issues raised by ICP are somehow irrelevant to the Applications (despite American General's presentation to the OTS, in connection with establishing its thrift, of the lending of its subprime affiliate MorEquity as relevant to the thrift's CRA record), we will begin by noting that AIG's July 26 letter does not even mention, much less address, the straight forward CRA issues ICP has raised.
ICP has commented, in writing and orally at the informal meeting, that the record is incomplete, including on CRA narrowly defined. For example, AIG's presentation on CRA centers around its submission of a two-and-a-third year old CRA plan, that it submitted in March 1999 in seeking a thrift charter. This document, an exhibit to the Application, stated at 8 that
On an annual basis, but more frequently during the Bank's first three years of operation, the Board will review the Bank's CRA objectives, plan and performance, and direct the CRA Committee to initiate any changes, additions or modifications to the Plan... The CRA Officer will work closely with the Bank's affiliates, the OTS, community leaders, and organizations to become more aware of community development needs, investments and programs.
--Emphasis added.
The submission of the identical documents as AIG submitted in March 1999 raises questions (to put it mildly) regarding the Board's review and modification of the CRA Plan, which was purportedly to take place "more frequently" than annually. Significantly, the final page of AIG's "CRA" exhibit is a still PROPOSED nondiscriminatory underwriting standard. It was "proposed" in March 1999, and remains "proposed" now, two and a third years later...
Turning now to the inadequacy of the record on American General's records under CRA, even narrowly-defined: the American General CRA performance evaluation annexed to the Application by AIG, which is from 1999, states plainly, at 2, that "we only have three months of lending activity to include in this evaluation... Credit products will need to be expanded or additional loan purchases made to better meet community credit needs...".
This clearly called (and calls) out for an update, but none was provided with the Application, nor in any of AIG's purported responses since.
When American General was applying for a thrift charter in 1998, American General Finance's CEO Frederick Geissinger sent a letter to OTS Director of Compliance Policy Tim Burniston concluding that "we believe that this proposed nation-wide commitment demonstrates a clear vision of the purposes of the CRA and the seriousness of American General's corporatewide commitment to be a determined leader in community development." Strikingly, the Application including no update whatsoever on American General's compliance with its "nationwide commitment." Even after ICP has raised the matter, AIG's July 26 submission provides no such update.
As I stated at the informal meeting, the federal bank regulatory agencies routinely direct applicants for merger subject to CRA (like this one) to provide detailed updates on their performance under previous commitments. In fact, most applicants include such updates in their initial applications. That these Applicants have STILL not provided any such update is reflective of their cavalier attitude toward CRA performance, and of the reasons why the record is incomplete. ICP will be addressing these and other matters at the formal meeting.
AIG's July 26 letter acknowledges that American General's extensive (and, ICP contends, troubling) subprime lending is relevant to this proceeding. AIG attempts, however, to limit the relevance to "as they relate to any reputational risk to AIG and AIG Federal Savings Bank as well as to the extent they are reflective of American General's managerial resources...". Id. at 1.
AIG does not address another clear connection that ICP has raised: American General Finance's CEO Frederick Geissinger's above-quoted letter to the OTS stated that American General's thrift "proposes initially to offer its mortgage products on a nationwide basis through its affiliate, MorEquity." Id. at 7. [FN 2: This American General letter, in the possession of the OTS, is hereby incorporated by reference. Just as the Applicants ask the OTS to rely on documents that they have not submitted in connection with the Application, ICP directs the OTS in this proceeding to the above-quoted previously submitted document (which American General, in any event, already has)]. MorEquity is an American General subprime lending affiliate.
At the formal meeting, ICP will discuss the most recent publicly available Home Mortgage Disclosure Act ("HMDA") data of MorEquity. The 2000 data will be made public in the near future; ICP reserves the right to discuss 2000 HMDA data at the formal meeting (and requests that American General provide it with its 2000 Loan Application Register, under 12 C.F.R. Part 203, Appendix A, on disk and in paper format, printed out grouped by county, and in census tract order, "to enhance its utility." 12 C.F.R. Part 203, Appendix A, Section III (F). For now, ICP notes that according to the 1999 HMDA data, American General Bank did not originate any loans, but only purchased them, in Orange County, CA, and Salt Lake City, UT. ICP again notes and incorporated herein by reference American General's 1998 letter to the OTS stating that American General's thrift "proposes initially to offer its mortgage products on a nationwide basis through its affiliate, MorEquity." AGF 1998 Letter at 7. In 1999, MorEquity Inc. (CA), a subprime lender, targeted African Americans with its high rate refinance loans much more so than the industry aggregate. For example:
In the Los Angeles, CA, MSA in 1999, whereas the industry aggregate made 8986 refinance loans to African Americans and 60,653 to whites (a ratio of 0.148), the subprime lender MorEquity (CA)'s ratio was 0.64. MorEquity targets African Americans with its high cost loans 4.32 times more frequently than the industry as a whole in this MSA.
In the Cincinnati, OH, MSA in 1999, whereas the industry aggregate made 2359 refinance loans to African Americans and 27,668 to whites (a ratio of 0.085), the subprime lender MorEquity (CA)'s ratio was 0.83. MorEquity targets African Americans with its high cost loans 9.76 times more frequently than the industry as a whole in this MSA.
The same was true with MorEquity Inc. (DE). In the Chicago IL MSA in 1999, whereas the industry aggregate made 19,327 refinance loans to African Americans and 95,939 to whites (a ratio of 0.201), the subprime lender MorEquity (DE)'s ratio was 3.0: 33 refinance loans to African Americans, and 11 to whites.. MorEquity targets African Americans with its high cost loans FIFTEEN times more frequently than the industry as a whole in this MSA...
The above are all matters that AIG does not even purported to address in its July 26 post-informal meeting submission. ICP now turns to matters that AIG mentions, if incompletely addresses, in its July 26 submission:
The second page of ICP's July 2 preliminary comment put into the record accounts of an American General loan to a senior citizen in Philadelphia at 23% interest, and of a federal court awarding $80,000 to a customer, Iris Bostic, whose suit for predatory lending American General settled. These are presumably what the Applicants' July 26 submission is referring to, at 2, when they say that they cannot "state categorically that each and every transaction conducted by its staff members or representatives complied with law and company policy." Several questions remain: are these accounts true? What reforms, if any, did American General implement after settling and being required to pay fees in the Bostic case? After being reported, in the Philadelphia Inquirer of February 6, 2001 (after the OTS' grant of a thrift charter, on which AIG asks the OTS to exclusively rely), to have made a 23% interest rate loan to a senior citizen whose mind, his daughter says, "is going"?
AIG's July 26 purported response to ICP's July 2 comment does not even mention, much less address, these two accounts (including by presenting any reforms taken thereafter).
At the informal meeting, AIG's general counsel attempted to focus on one of the two debt collection matters presented in ICP's July 2 comment, while ignoring and jumping over the first (see July 2 comment at 3-5). AIG's July 26 written submission repeats this, emphasizing that American General's relationship with the collections lawyer in one of the cases was "severed" -- but says nothing about the other case. Both are egregious, and both accounts are from a time period after the OTS granted American General a thrift charter... As further discussed below, the record is not complete, even on this issue.
AIG's July 26 submission at 3 references a senior American General lawyer (one involved in the 1998 thrift charter application, to whom ICP was directed to send copies of its submissions, for example) directing an American General staffer to destroy documents. This clearly raises managerial resources questions, which we intend also to discuss at the formal meeting.
That American General was charged with race-based insurance underwriting is a serious adverse issue to be discussed at the formal meeting -- the issue was not of record when American General was granted a thrift charter. AIG attempts to minimize the issue by saying it was companies that American General acquired, "unbeknowst" to it. At a minimum, this (also) raises managerial resources (including due diligence, on which AIG is asking the OTS to rely) questions, which will be discussed at the formal meeting.
We will also, obviously, be discussing the issues raised by the American General loan documents we have already submitted, and others we anticipate submitting prior to the formal meeting (on the "five days before the formal meeting" timeline provided in the OTS' regulations, see infra).
AIG devotes the longer section of its July 26 submission to the American General loan documents that ICP put into the record on July 23 (and that AIG was clearly unprepared to discuss at the informal meeting: the Applicants' counsel even seemed to miss the fact that some of the loans were real-estate secured, and some were not).
AIG's July 26 submission does not address the blatant flipping that ICP explicitly raised in its July 23 comment. Rather, AIG claims that loans at up to 40% interest are in compliance with an applicable state law cap that tops out at 36%. AIG cites this interest rate statute, and then claims to be following the law. The unarticulated argument attempts to distinguish interest rates from APRs. Id. at 4. ICP maintains that the previously submitted American General loan notes raises legal -- and policy -- issues that the Applicants have simply not addressed, and that ICP will discuss at the formal meeting... To amplify the record, ICP is annexing hereto several additional American General loan documents, including of loans made in 2001 and 2000. ICP is also annexing portions of the complaint in two predatory lender-related cases pending against MorEquity (which, as noted, was referenced in American General's submissions to the OTS to charter the thrift, see supra): Gloria Ann Hampton and Lionel Hampton v. MorEquity, Inc. and American General Finance, Inc., amended complaint filed June 8, 2001, and the class action complaint in Mary T. Morris, et al. v. MorEquity, Inc. et al., complaint filed May 2, 2001... ICP will be discussing these and other MorEquity-related matters at the formal meeting.
AIG's July 26 submission complains that it needs more information about the American General loan documents previously submitted in order to more fully respond. As ICP said at the informal meeting, AIG can and should address the policy issues raised by the submitted loan documents, including flipping. AIG's July 26 submission does not do that. That policy issues have been raised, that the issues are material and that the record thereon is not complete, is confirmed (including to the OTS) by a letter that the New York Banking Department sent to AIG on July 26, 2001, asking for responses to twelve questions by August 2, 2001. As noted, the NYBD's review does not even include the (state, or federal) Community Reinvestment Act. The NYBD on July 26 asked AIG to provide the NYBD with the following:
1. Describe the policies, procedures and methods employed by AGFI and AGHE to monitor and ensure compliance with fair lending and consumer protection laws and regulations, including those which pertain to servicing and debt collection practices. Among other things, please describe the companies' use of the following, if applicable: self-assessments/audits, comparative file analysis, second review processes, and corporate and branch level training.
2. Provide copies of the underwriting policies and procedures, compliance materials and all changes to said policies within the more recent 24-month period, utilized by AGFI and AGHE.
3. Provide copies of the fair lending training program materials utilized by AGFI and AGHE and training schedule during the most recent 24-month period.
4. Describe each of the prime and subprime loan products offered by AGFI and AGHE, including their major terms and any changes to major terms that have been made within the most recent 24-month period. Please provide the annual volumes for such products by each entity, including the number and dollar amount of loans.
5. Describe the processes through which each type of prime and subprime loan product is made (e.g., through loan offices, intermediaries or through a referral arrangement), including the credit review process for each. If intermediaries such as brokers or dealers are used, please describe how commissions or other compensation to such intermediaries are determined.
6. Provide copies of all agreements that AGFI and/or AGHE has with any third party originator for all loan types when indirect origination of applications takes place. Provide the total application volume by third party originators for the most recent 24-month period.
7. For prime and subprime loan products that have risk-based pricing, describe the methodology for determining interest rates.
8. With regard to your responses to questions #1 - #7, please indicate whether AIG plans to adopt the policies, procedures, practices and methods described above. If AIG anticipates making any changes, please describe.
9. Provide data files of Standard HMDA Information for AGHI and AGHE for the last year years (1999 and 2000).
10. With respect to criminal, civil and administrative activities involving the lending (including servicing and debt collection) activities of AGHE and AGFI, provide a brief summary of each:
--pending criminal, civil and administrative action against each entity;
-pending civil, class action litigation; and
--criminal, civil and administrative action by any governmental entity or civil, class action litigation that was resolved or settled in 2000 or 2001.
Your response to each action, investigation or litigation should
--identify the relevant parties involved in the action, investigation or litigation
--provide a brief summary of the claims or scope of the investigation
--disclose the maximum amount of penalties, fines or damages sought
--discuss the status of the action, investigation or litigation
--if applicable, discuss how the action was settled; and
--with regard to pending actions, AIG's intent to defend or settle.
11. In your letter to Superintendent of Banks Elizabeth McCaul dated July 19, 2001, you state that American General Finance is in the process of implementing changes where necessary to ensure complete consistency with the best practices lending principles by the American Financial Services Association. Regarding this, please:
--Provide a copy of such lending principles
--Indicate where, if at all, American General Finance's current policies differ from such principles, and
--Indicate the status of any plans to change American General Finance's existing practices.
12. Please indicate whether AIG's corporate policies and procedures with respect to the protection of private financial information will be employed by AGFI and AGHE. If so, please describe these policies and procedures...
Please submit your response... by Thursday, August 2, 2001. If you wish to request confidential treatment for any portion of its response, you are asked to specifically indicate so.
First, the above-quoted NYBD July 26 questions simply confirm that the record is nowhere near complete on these Applications (note again that these OTS applications are subject to CRA, and AIG's NYBD applications are not).
Second, ICP will be discussing at the formal meeting the material that AIG submits in response to the above-quoted questions. AIG's responses are due August 2; following the law and the NYBD's prior precedents, all of AIG's submission that is not exempt from disclosure under the Freedom of Information Law (or is not otherwise in the public interest to release) will be provided to ICP.
Third, ICP urges the OTS to ask the Applicants similar and additional questions....
For the record, AIG on July 26 issued a press release quoting its CEO M.R. Greenberg that "[t]he American General acquisition remains on track and American General has scheduled a shareholder vote for August 15. We have received approvals from a number of states, and expect the remaining approvals in August. We plan to close the transaction as soon as possible thereafter." Emphasis added. Given the OTS' July 6 determination to hold an informal meeting, and the OTS' clear regulations (and statements in promulgating these regulations, quoted below), AIG's statement implies that AIG believes either that no formal meeting will be held (which would be counter to law and regulation), or that the OTS will deviate from its regulations and precedents, which provide that in circumstance such as this the OTS "will" hold a formal meeting, will give at least 15 days notice thereof, and holds the record open after the transcript of the hearing is made available (ICP contends, in light of what even the OTS acknowledged was a less than productive interchange at the informal meeting, that it will be necessary to hold the record so open, to allow rebuttal and submission of clarifying information).
In light of the above-quoted, and due to the concerns expressed in ICP's July 24 letter and at the informal meeting, ICP will now discuss the applicable OTS regulation (requiring the requested formal meeting), and the OTS' statements, published in the Federal Register, when it promulgated these regulations in 1997.
This request is timely; the "nature of the issues or facts to be presented," already provided in ICP's July 2, July 22, July 23 and July 24 written comments, is further elaborated and discussed herein.
AIG's July 26 letter, calling repeatedly for the OTS to "proceed with the prompt approval of the Application," appears to ignore the above-quoted regulations, the OTS' prior precedents, and, even more clearly, the OTS' statements published in the Federal Register when the OTS promulgated these regulations in 1997 (and with OTS comments in amending its application processing rules in 2001, discussed further below). ICP will quote therefrom, and provide a commentary:
The Federal Register of December 4, 1997 (Volume 62, Number 233), Application Processing, stated clearly that
To ensure that the OTS will have sufficient notice of the questions to be discussed at the informal meeting, requests should describe the nature of the issues or facts to be discussed and the reasons why written submissions are insufficient to adequately address these facts or issues....
That is to say, the purpose of requesting a description of the nature of the issues or facts to be discussed and the reasons why written submissions are insufficient to adequately address these facts or issues" is only "to ensure that the OTS will have sufficient notice of the questions to be discussed." Such notice is provided by ICP's July 2, 22, 23 and 24 comments, and this submission.
if an informal meeting fails to facilitate the resolution of issues to the satisfaction of any participant in an informal meeting, the final rule provides that the OTS will conduct a formal meeting before a presiding officer upon the filing of a request...
For the record, and as was clear at the conclusion of the telephone meeting on July 25, ICP does not feel that the issues were resolved at the informal meeting, and is timely confirming this in writing. Pursuant to the above-quoted, the OTS now "will" conduct a formal meeting.
If a participant in the informal meeting files a request for a formal meeting under Sec. 516.170(e), the OTS will grant the request.
Note again the use of the word "will."
The OTS will announce formal meetings by issuing a Notice of Formal Meeting. The Notice will state the subject and date of the filing, the time and place of the formal meeting, and the issues to be addressed. The OTS will send the Notice to the applicant and any commenter requesting a formal meeting. The OTS may invite other interested persons to participate in the formal meeting by sending the Notice to such persons. See final Sec. 516.180(b). Paragraph (c) addresses who may participate in a formal meeting. A person receiving a Notice must notify the OTS of its intent to participate in the formal meeting within ten days after the OTS issues the Notice. At least five days before the formal meeting, all participants must provide the names of their witnesses and copies of their proposed exhibits to the OTS, the applicant and any other person designated by the OTS...
A person has ten days to inform the OTS of an intention to participate. Clearly, given the requirement that such a person must provide names of witnesses, etc., to the OTS five days before the formal meeting, the meeting cannot be held any less than fifteen days after the Notice of Formal Meeting is issued.
The OTS will arrange for a transcript of the formal meeting...
The final rule provides for suspension of application processing time frames if the OTS has arranged an informal or formal meeting.
In issuing amendments to its application processing rules in 2001, the OTS commented briefly on the informal and formal meeting standards (without amending them in any way). The OTS' preamble in the Federal Register of March 2, 2001 states, in pertinent part:
OTS did not propose changes to the formal and informal meeting procedures in Subpart D, but sought comment on how these meeting procedures are operating in practice....
Under § 516.170, OTS will conduct an informal meeting whenever a commenter requests such a meeting. n10 One commenter argued that not all comments should result in an informal meeting. The commenter asserted that OTS should require that allegations have some merit before an informal meeting is arranged. The commenter also noted that under existing § 516.190, arranging an informal meeting will suspend the application processing time frames. The commenter argued that OTS should only suspend the time frames if OTS determines that there are extraordinary circumstances. Compare § 516.260 (OTS may suspend processing under § 516.260 only for extraordinary circumstances such as pending legislation or material litigation).
n10 OTS will not arrange an informal meeting, however, where a request is clearly frivolous or clearly lacking a factual basis. With respect to formal meetings, OTS will conduct a formal meeting when a request is filed under § 516.170(e). A request under § 516.170(e) must demonstrate that material issues or facts have not been adequately addressed by the informal meeting and that a formal meeting is necessary to develop a record sufficient to support a determination on those facts or issues.
OTS has not revised the informal meeting process. This process ensures that all allegations of harm to individuals and communities are fully explored and that OTS may issue an informed decision on the merits of an application. While the commenter feared that some individuals or community groups may request an informal meeting solely to suspend the application processing time periods, OTS knows of no situation where this has occurred...
If a meeting has been arranged, the application processing time periods will resume only when OTS determines that a record has been developed that sufficiently supports a determination on the issues raised by the commenters. See existing § 516.190. One commenter argued that OTS should establish a deadline for the completion of the meeting process. The commenter argued that OTS should have a fixed time period following the conclusion of the meeting (e.g., two weeks) to create a record supporting the determinations regarding the issues raised by the commenters.
OTS believes that a fixed time frame would limit its ability to develop a thorough record. In some instances, two weeks may be insufficient to develop a record. Accordingly, OTS will resume the time periods when the record is developed. It will not impose a rigid time period that will unnecessarily inhibit its flexibility.
--Emphasis added.
As the above states, the OTS neither proposed to, nor did, revise the informal or formal meeting procedures or standards. The OTS has already, correctly, found substance in ICP's initial July 2 comment. ICP's subsequent comments, including this request, are clearly even more detailed and substantive than the July 2 comment. Throughout this request, ICP has identified (and the record reflects) "material issues or facts [that] have not been adequately addressed by the informal meeting," nor by AIG's July 26 submission. On these issues, a formal meeting is necessary to develop a record sufficient to support a determination.
At this point, in light of proceedings to date and AIG's July 26 press release, and anticipating in light of the tone of AIG's written response and statements at the informal meeting that AIG will claim that ICP's interest in reviewing 2000 LAR data is a "dilatory tactic" (as AIG's July 24 letter, at n.1, puts it), ICP believes it is relevant to also consider (and place into the record this account of) the OTS' processing of, and proceedings in connection with, the Conseco / Green Tree application in 1999, under the same regulations applicable here. In that proceeding:
ICP requested an informal meeting on March 10, 1999.
A full month before the informal meeting was held, Presiding Officer Satterthwaite asked the parties to submit the information they wished to discuss a week before the informal meeting. Here, the informal meeting was scheduled on only 24 hours notice.
The Conseco/ Green Tree informal meeting was held on August 31, 1999. Conseco / Green Tree's position, at that informal hearing, was strikingly different that AIG's stated position that "there is nothing to be corrected... I don't see the problems" (see supra) -- even though ICP has submitted more adverse evidence in this case than in the Conseco / Green Tree case.
ICP made, as here, a timely request for a formal meeting, on September 2, 1999.
On September 9, 1999, ICP's request for a formal meeting was granted, and the formal meeting was held on September 23, 1999: three weeks after ICP's request, and two weeks after the OTS' grant thereof.
The formal meeting was (as should be done here) transcribed; the 152 page transcript was provided to ICP, and ICP commented thereon.
This process is what is demanded by the OTS' regulations; the above describes OTS precedent. ICP raises this in this request in light of the inordinate rushing of the informal meeting, due, we believe, to pressure applied by AIG.
On the current record, the OTS could not legitimately approve AIG's applications. For the reasons set forth above, ICP's request for a formal meeting must be granted, and the scope of the formal meeting should include the issues raised above, and the other adverse issues of record.
If you have any questions, please telephone me at (718) 716-3540. Thank you for your attention.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
cc: Ernest T. Patrikis, Esq.
American International Group, Inc.
NOTE: This page will be updated. For or with more information, contact us.
* * *
Update of July 23, 2001: On July 1, Inner City Press / Community on the Move filed comments with the New York Banking Department and Office of Thrift Supervision, both of whose approvals AIG needs to acquire American General. We focused on American General Finance; single premium credit insurance was a major (but not the only) focus. ICP's comments are summarized below. ICP's July 9 comment names the American General subsidiaries which offer single premium credit insurance.
In response to ICP's July 1 comment, the OTS granted ICP's request for an extension of the comment period, to July 23, and for a hearing, which will be held after ICP makes its July 23 filing.
On July 19, AIG's general counsel responded to ICP's comments to the NYBD, and stated, with reference to the "assertion that ICP makes that relates to AGF's operations in New York [] that AGF currently offers single premium credit insurance" that " AGF does offer that product in New York...".
Then, five paragraphs later, AIG's letter states that "AGF will cease offering single premium credit insurance to its real estate loan customers by August 31, 2001... AGF intends to commence offering a monthly premium credit insurance product for real estate loans as soon as it has the system capability and regulatory approvals to do so. Some customers in the interim may not have the ability to elect credit insurance coverage."
And so: the third largest subprime lending in the United States is now dropping single premium credit insurance. See, e.g., "Third Insurer to Stop Selling Single-Premium Credit Life Policies," by Patrick McGeehan, New York Times, July 21, 2001, and article forthcoming in the American Banker newspaper on July 23, 2001. It's a good step, but only one of a number of steps needed to reform American General's practices. On July 22, ICP submitted to the OTS and NYBD more than a dozen American General Finance loan documents showing not only high-cost single premium credit insurance, but also a variety of other troubling practices, including high fees, mandatory arbitration clauses, etc.. ICP's July 22 comment to the OTS is summarized below. For or with more information, contact us.
July 22, 2001
Regional Director Robert Albanese, Mr. Tom Smith, et al.
Office of Thrift Supervision, Northeast Regional Office
10 Exchange Place, 18th Floor
Jersey City, NJ 07302
Re: Supplemental, pre-informal meeting comment in opposition to the applications of American International Group, Inc. to acquire American General Bank, FSB and its affiliates, and to merge American Banker Bank, F.S.B. into AIG Federal Savings Bank
Dear Regional Director Albanese, Mr. Smith, et al.
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a supplemental, pre-informal meeting comment in opposition to the applications of American International Group, Inc. and its affiliates ("AIG") to acquire American General Bank, FSB and its affiliates ("American General"), and to merge American Banker Bank, F.S.B. into AIG Federal Savings Bank.
As you know, on July 2 ICP submitted a preliminary comment and hearing request. By letter dated July 6, your Office extended the comment period to July 23, and stated that "[w]e plan to schedule an informal meeting pursuant to 12 C.F.R. §516.170 after you have submitted your additional comments." ICP looks forward to the informal meeting, and, in advance thereof, submits this supplemental comment.
ICP's preliminary comment sketched problematic subprime lending practices by American General in Philadelphia (loan at 23% interest to alleged mental incompetent); West Virginia (request for $500 loan leads to $31,000 debt); Illinois (abusive collection practices); Indiana (Fair Debt Collection Practice Act violations); Wyoming (violations of borrowers' privacy); etc..
In a response filed with the New York Banking Department on July 21, AIG emphasizes that this litany does not implicate American General's practices in New York State. (AIG also states that American General will cease offering single premium credit insurance on August 31, 2001; this is further analyzed infra in this Comment). Clearly, however, the OTS' jurisdiction is not limited to New York State.
In this supplemental comment, ICP will first focus with more specificity on American General's subprime lending practices. ICP is today submitted to the OTS electronic scans of 27 sample American General loan notes. These American General loan documents, we believe, speak for themselves. They include, for example, loans with interest rates of 40% (Note 15), 34% (Notes 1 and 10) 31% (Note 2), and 22% (Note 5: a loan made in July, 2000, in Mississippi). Several of these loans are still outstanding, with terms running until 2006 (Note 13), 2005 (Note 7), and 2003 (Note 5). These American General loan notes raise a panoply of questionable subprime (or predatory) lending issue; we are timely putting them into evidence and intend to elaborate further thereon at the informal meeting.
There is also the issue of mandatory arbitration in connection with high-cost, allegedly predatory loans. We direct the OTS to the Supreme Court of Alabama's decision in its October 2000-2001 Term, in American General Finance, et al. v. Mabel Branch, finding that American General Finance's mandatory arbitration clauses were unconscionable:
The first indicium of unconscionability is the breadth of the clause. The arbitration provision in Branch's contract is unusually broad in scope and application. It applies to every "dispute[] or controversy[] ... relating to" every actual or potential transaction -- whether past, present, or future -- and to every person, whether signatory or nonsignatory to any document, involved in such a transaction between the parties. (Emphasis added.) Thus, it applies to every cause of action that could conceivably arise in favor of Branch, and to every individual against whom a claim could conceivably be brought...
A second indicium of unconscionability is the provision purporting to invest the arbitrator with the threshold issues of arbitrability...
A third indicium is the provision exempting the Lenders from the duty to arbitrate and expressly reserving for them the right to try to a jury their claims against Branch up to $10,000. Practically speaking, this provision benefits only the Lenders. In other words, American General reserved for itself the right to collect by judicial action the loan payments -- the only species of claim it would ever realistically be expected to assert against Branch -- while requiring Branch to settle by arbitration claims such as breach of contract and fraud -- the species of claims she would most likely assert against the Lenders... the Lenders have reserved for themselves the right to full redress for their claims, but denied that right to Branch. In other words, the contract limits not only the right to a specific forum, but the right to a remedy itself....
Branch testified by affidavit: "All of the documents and forms I signed which were used in borrowing the money in question were provided to me by American General Finance, Inc. I did not provide any of them, I did not have any input into them, and I did not have any choice about what documents to sign if I wanted to borrow the money. I was told that in order to borrow the money I had to sign all the paperwork where they showed me."... For these reasons, we conclude that the trial court did not err in holding the arbitration provisions in Branch's contract to be unconscionable and unenforceable.
Emphases in original.
It is imperative that the OTS inquire with the applicants as to the current status of American General's use of mandatory arbitration clauses in connection with subprime loans -- including but not only because the Supreme Court of Alabama has found American General's mandatory arbitration clauses to be unconscionable.
* * *
AIG's Application, at 2, states that "in order to remain a grandfathered unitary thrift holding company following the Acquisition, AIG plans to merge American General Bank with and into AIG Bank...". By this logic, ANY thrift holding company with "grandfathered" rights (this provision was supposedly to provide a limit, not a carte blanche) can remain a "unitary," simply by merging any acquired thrifts into its current thrift. ICP contends that the only emergency transactions allow a unitary thrift to retain grandfather rights. This is not the first thrift charter legal maneuver for American General: when its application for a de novo charter was stalled by (appropriate) scrutiny, American General decided to simply buy a charter, that of Standard Pacific Savings, F.A.. ICP contends that this switched structure of American General's 1999 entry into thrift holding company status led to a failure to fully and appropriately assess American General's business; ICP opposes the proposed further thrift charter legal maneuvers. This, too, will be discussed at the informal meeting.
Even though AIG proposes to merge its thrift with American General's, AIG present no business plan (or CRA plan) for the proposed combined thrifts. See, e.g., App. at 45 and 47. This is illegitimate; ICP contends that a CRA plan should be submitted, prior to the informal meeting. AIG's lackadaisical approach to CRA is exemplified by the fact that now, in mid-2001, it submits as its thrift's CRA plan the identical document that it submitted more than two years ago, in March 1999, when it was chartering the thrift. In fact, the final document in this "Plan" is still labeled "Proposed." App. at Exhibit 13.
Note that while the applicants may try to argue that American General's subprime lending is unrelated to its thrift, the Application at 49 confirms that American General Bank has an "agency office" in Evansville, IN (AGF's headquarters), and that a main reason American General sought a thrift charter was to use it in connection with its subprime lending, to preempt state consumer protection laws and otherwise (it is also used for American General's largely-subprime private label credit card business).
The CRA performance evaluation of American General's thrift annexed to the Application acknowledges that it is based only on the thrift's first three months of operation (hence, it is out of date -- note that it states that "additional time will be necessary to more fully analyze results and draw conclusions," id. at 9); it cites an extremely low concentration of loans in the (too small) assessment areas.
Further note that the Application confirms that the customers of AIG and AIG's thrift would be subjected to American General's (questionable) product line: AIG states that its customers would "benefit from the expanded product portfolio" (App. at 7) -- but this "portfolio," which would be expanded, to AIG's customer base, including the questionable subprime products discussed in ICP's comments, and exemplified by the attached American General loan documents.
ICP also opposes the applicants' request not to comply with the requirement that they submit material information including buy not limited to a list of affiliates (App. at 22-23); and biographical information (App. at 24). ICP is struck by how little information is provided, in the text of the Application, regarding AIG's co-applicants: the Panamanian corporation Starr International Company; C.V. Starr & Co.; the Starr Foundation, etc.. ICP has also today appealed under the Freedom of Information Act the withholding of various material portions of the Application. For example, as provided to ICP, AIG's Application refers to a withheld "Confidential Exhibit A" -- which is "the form of the Agreement and Plan of Bank Merger." Since the proposed bank merger is subject to CRA review, ICP contests the withholding of the entirety of the Bank Merger Agreement. Such documents are routinely made public, in connection with applications to the OTS and otherwise. ICP is also appealing the withholding of the entirety of purportedly confidential exhibits C and D, particularly because the application gives so little detail about the proposed future CRA plan. In the absence of CRA information in the provided portion of the application, ICP must assume that some CRA-related information is included in these two exhibits, and ICP has appealed for all non-exempt portions thereof. Even if there is some withholdable information in the Agreement, all segregable non-exempt portions must be provided to ICP. ICP asks that its FOIA appeal be ruled on, and all improperly withheld information be released, prior to the informal meeting.
* * *
Despite the fact that ICP submitted a detailed, 11-page preliminary comment on July 2, AIG and American General have not, to ICP's knowledge, submitted any response to the OTS. ICP desires and deserves an opportunity to reply to AIG's response to the issues raised in ICP's July 2 comment, and hereby asks for an extension of the comment period. In the absence of any AIG response to the OTS, we will comment briefly on a response that AIG submitted to the NYBD on July 19.
AIG's July 18 NYBD submission is of limited relevance in this OTS proceeding, in that it focuses almost exclusively on New York State (see, e.g., AIG NYBD Resp. at 1 and throughout). AIG states that "the only assertion that ICP makes that relates to AGF's operations in New York is that AGF currently offers single premium credit insurance. AGF does offer this product in New York, in full compliance with regulations set forth by the New York Insurance Department."
After the above-quoted portion of AIG's July 19 NYBD Resp., AIG states that "AGF will cease offering single premium credit insurance to its real estate loan customers by August 31, 2001." This is certainly one necessary step; it by no means, however, addresses the other adverse issue raised in ICP's July 2 comment and herein. Furthermore, even on the issue of single premium credit insurance, it is unclear why the needed reform is being applied ONLY to "real estate loan customers."
In the other paragraphs of the NYBD Resp., AIG focuses on "AGF's portfolio of New York real estate secured loans" (page 2, full para. 2), "AGF's New York portfolio" (page 3, full para. 1), and AGF's "record of compliance in the state of New York (page 3, full para. 2). While ICP contests many of AIG's assertions, it is clear that the OTS's jurisdiction and focus are not limited to, or even concentrated on, New York. While, for example, AIG states that AGF does not make "Part 41" loans in New York (page 2, full para. 4), AGF clearly makes HOEPA loans in other states (see supra, and today's electronic attachment). ICP awaits an AIG / American General response to the OTS (which cannot legitimately be limited to NYS issues), and will promptly reply thereto. ICP believes that AIG's OTS response should be submitted sufficiently prior to the informal meeting so that the issues are sharpened, and perhaps even limited, prior to the informal meeting.
If you have any questions, please telephone me at (718) 716-3540. Thank you for your attention.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
cc: Ernest T. Patrikis, Esq.
American International Group, Inc.
NOTE: This page will be updated, when we receive the information AIG has sought "confidential treatment" for from the OTS, and AIG's and American General's response(s) to the OTS. For or with more information, contact us.
* * *
Update of July 16, 2001: In light of Household's July 10 announcement, "making a break" with single premium credit insurance, American General's continued marketing of the product, while AIG applies to agencies including the N.Y. Banking Department and the Office of Thrift Supervision, appears more and more untenable. AIG has still not submitted its response to ICP's July 2 comments; ICP is preparing its timely supplemental comment to the OTS (due July 23, after which the OTS will schedule an informal meeting). This will be updated...
Update of July 9, 2001: On AIG's applications to acquire American General, the New York Banking Department extended the comment period to July 10, and the Office of Thrift Supervision has extended the comment period for ICP until at least July 23, and states that it plans to schedule an informal meeting on AIG's application, after ICP's supplemental comment. A central issue, at this juncture, is American General's subprime lending, and credit insurance practices. ICP is awaiting receipt of a copy of AIG's application to the OTS, and of AIG's response to the issues ICP has raised to the NYBD. Below is a summary of ICP's July 9 supplemental comment to the NYBD:
July 9, 2001
New York State Banking Department and Board
Attn: Superintendent Elizabeth McCaul
Two Rector Street
New York, NY 10006
Dear Sup't Elizabeth McCaul and Board Sec't Christine Tomczak:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a timely supplemental comment opposing the applications of American International Group, Inc., (1) pursuant to Article IX of the Banking Law, Section 344, for prior approval of the Superintendent to acquire indirect control of American General Finance, Inc, and (2) pursuant to Article 12-D of the Banking Law, Section 594.b, for prior approval of the Superintendent to acquire indirect control of American General Home Equity, Inc..
On July 1, 2001, ICP submitted an initial comment, putting into the record information about American General's subprime consumer finance operation: rates up to 23%, violations of consumers' privacy, abusive collection practices, etc.. It also appears clear that American General markets single premium credit life insurance, a productive which is presumptively predatory, in connection with subprime loans -- and a product that the Department encouraged Citigroup to discontinue, in connection with Citigroup's similar application to acquire Associates' New York business.
A recent American General Finance SEC filing states:
AGFC is a financial services holding company with subsidiaries engaged primarily in the consumer finance and credit insurance business. We conduct the credit insurance business to supplement our consumer finance business through Merit Life Insurance Co. (Merit) and Yosemite Insurance Company (Yosemite), which are both subsidiaries of AGFC.
We also sell credit life, credit accident and health, credit related property and casualty, and non-credit insurance to our consumer finance customers. The benefits of these insurance products for both our customers and us are described under Insurance Operations. Premiums for insurance products are most often financed as part of the finance receivable but may be paid in cash to the insurer.
On July 3, the Department provided ICP with most of AIG's applications, and extended the comment period to July 10, 2001. While ICP is still reviewing the more than 1,000 pages of the applications, ICP was troubled to see, in the applications annexed to AIG General Counsel Patrikis' letters of June 11, 2001, the statement that "AIG does not currently expect that... there will be changes to [American General's] current personnel, products or procedures... business activities will be the same following the acquisition."
Reasons why ICP finds this troubling are detailed in ICP's July 1 Comment. ICP reminds the Department that it did not accept such a status quo position from Citigroup, when it applied last Fall to acquire The Associates' New York business. See, e.g., Citigroup commitment letters of November 7 and 29, 2000; and see Citigroup letters of June 25 and 28, 2001. These letters made commitments regarding practices that are not dissimilar to American General's practices today, as put into the record by ICP's July 1 Comment. ICP is surprised that AIG has not yet submitted a response to ICP's July 1 Comment, and asks that the comment period be extended to permit ICP to reply to AIG's response, when it is submitted. Such an extension would not prejudice AIG or American General: not only is the required shareholders' vote not scheduled until August 15, 2001, but also, see the Office of Thrift Supervision's July 6, 2001, letter to ICP, regarding AIG's OTS application, annexed hereto [extending the comment period through July 23, 2001, and stating that "we plan to schedule an informal meeting pursuant to 12 C.F.R. §516.170 after you have submitted your additional comments"].
We will await AIG's and/or American General's response to our detailed July 1, 2001, comments, and we be replying thereto. In the interim, we urge the Department to inquire into American General's practices, including but not limited to single premium credit insurance practices.
On the current record, these applications could not legitimately be approved. If you have any questions, please telephone me at (718) 716-3540. Thank you for your attention.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
cc: Ernest T. Patrikis, Esq.
American International Group, Inc.
NOTE: This page will be updated, when we receive the information we've requested from the OTS, and AIG's and American General's response(s) to the NYBD. For or with more information, contact us.
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July 2, 2001: Below is an extract from ICP's preliminary comment on AIG - American General, filed July 1 with the New York Banking Department (from which AIG needs regulatory approval):
July 1, 2001
New York State Banking Department and Board
Attn: Superintendent Elizabeth McCaul
Two Rector Street
New York, NY 10006
Dear Sup't Elizabeth McCaul and Board Sec't Christine Tomczak:
On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Public Interest Law Center (collectively, "ICP"), this is a preliminary comment opposing, and re-requesting an extension of the comment period on, the applications of American International Group, Inc., (1) pursuant to Article IX of the Banking Law, Section 344, for prior approval of the Superintendent to acquire indirect control of American General Finance, Inc, and (2) pursuant to Article 12-D of the Banking Law, Section 594.b, for prior approval of the Superintendent to acquire indirect control of American General Home Equity, Inc..
As set forth below, American General is a financial conglomerate which is involved in questionable subprime lending. Notice of these applications appeared for the first time in the Department's Weekly Bulletin of June 22, 2001, with an initial comment period at least ten days long (that is, until at least July 2, 2001). On June 23, ICP faxed a Freedom of Information Law ("FOIL") request to the Department, requesting a copy of the applications, and stating that "if the documents are not provided at least three days prior to the expiration of the comment period, ICP hereby requests an extension of the comment period." On June 28, the Department wrote to ICP, stating that "the material you requested will be reviewed to ascertain whether it is available under FOIL. Usually requests are granted or denied, in whole or in part, within 30-60 days from the date of this letter." ICP hereby timely reiterates its request for copies of the applications and for an extension of the comment period, and offers these preliminary comments:
American General's subprime lending is not limited to HMDA-reportable mortgage loans. On real-estate secured loans, it charges interest rates up to 23%. See, e.g., Philadelphia Daily News of February 6, 2001, "Some Subprime Brokers Use Questionable Tactics, Confuse Borrowers:"
David Freeman, 80, of North Philadelphia, put his house up as collateral in return for a $ 3,585 loan at 23 percent from American General Finance. The collateral also include exercise equipment, a stereo, TV, camera and grill as collateral, the loan documents show.
Freeman's daughter, Vicki, said her father's "mind is going," and he may not have understood what he was signing. Since 1984, Freeman has received eight subprime loans.
--Emphasis added.
Note that the above loan was by one of the entities AIG is here applying to acquire: American General Finance.
American General's practices result, inter alia, in borrowers who begin with loans as small as $500 ending up owing as much as $31,000. See, e.g., The Charleston Gazette of March 08, 2000, "Widow Awarded Legal Fees in Home Equity Loan Case:"
Lawyers for a Kanawha County miner's widow deserve nearly $ 80,000 from the Indiana loan outfit she accused of ripping her off, a federal judge ruled Tuesday.
U.S. District Judge Charles H. Haden awarded $ 72,589 in fees and $ 6,930 in costs to... lawyers who helped him represent Iris Bostic in her lawsuit against American General Finance.
Bostic alleged that an effort to borrow $ 500 in 1997 ended up as a $ 31,000, high-interest loan. The lawsuit alleged the business took advantage of Bostic, 66, and her lack of financial knowledge with hidden fees, misleading language and other tactics.
American General, of Evansville, Ind., ended up settling the suit.
American General has also recently been found to engage in abusive collection practices. See, e.g., Consumer Bankruptcy News of May 15, 2001; In re Joan I. Shade, No. 00-71143 (March 19, 2001): ..."After the creditors' meeting in her case was concluded, Joan Shade was accosted in the hallway outside the meeting room by a representative of American General Finance, one of her creditors, who demanded payment. Shade was reduced to tears and returned to the room to find her attorney. When Shade returned to the hallway with her attorney, the creditor demanded that the attorney leave so he could talk with Shade alone. The attorney refused and escorted Shade out of the building. American General did not respond to the debtor's motion for sanctions under Section 362(h). The court awarded 500 in attorney's fees, 1,000 in compensatory damages for emotional distress and 9,000 in punitive damages...".
An Indiana appeals court also recently found American General to be involved in numerous Fair Debt Collection Practices Act violations. See, e.g., Consumer Financial Services Law Report of April 16, 2001:
Reversing the judgment of a lower court, the Indiana Court of Appeals found a debt collector violated the Fair Debt Collection Practices Act when he failed to cease collection of the debt and obtained a default judgment against the debtor after being notified in writing the debtor was disputing the debt. (Spears v. Brennan, No. 49A02-0003-CV-169 (Ind. Ct. App. 3/26/01).)
American General also appears to violate its customers' privacy rights. See, e.g., Wyoming Tribune-Eagle of June 4, 2001, "Data Disposal Angers Clients:"
American General Finance promises its customers that it will protect their financial information. The company, one of the largest consumer finance companies in the country, puts that promise on its Web site. But this week at the Cheyenne office, files were tossed in an unsecured trash bin outside the building. Branch manager Joe Ruxton said it's an isolated incident; his company has a records disposal policy -- not in the privacy policy, but in its operations policy. "If some files were thrown in the Dumpster, they were mistakenly thrown away," Ruxton said. But at least three times in the last year, when the company has purged its files, boxes filled with confidential client information have ended up in the trash. Brian Box, head of Three Smart Monkeys, a small business consulting firm, said he's seen files in the trash bin at least three times in the last year outside the building at 2206 Dell Range Boulevard when he has gone to see a client there. "There were three incidents," he said, "months apart."
American General's disposal (or destruction) of documents has gotten it into other, even more troubling, problems. See, e.g., Consumer Bankruptcy News of March 20, 2001, "Satellite dish financer has out-of-this-world bankruptcy A.G. Financial's story includes burned records, an angry employee and 240,000 consumer creditors."...
American General has also been accused of race discrimination in insurance, by state regulators. See, e.g., Insurance Accounting of June 26, 2000, "Race-Based Probe Nets American General."
The Department must closely inquire into American General's practices, in connection with these applications. In 2000, when Citigroup applied to acquire Associates' New York operations, the NYBD held a public meeting, and obtained certain commitments from Citigroup, upon which it has since build. There is, particularly in light of the above, no reason that a similar process not be initiated with regard to American General... Again, ICP reiterates its request for copies of the applications and for an extension of the comment period. On the current record, these applications could not legitimately be approved.
If you have any questions, please telephone me at (718) 716-3540. Thank you for your attention.
Very Truly Yours,
Matthew Lee, Esq.
Executive Director
NOTE: This page will be updated, when we receive the information we've requested from the NYBD, and AIG's and American General's response(s) to the NYBD. For or with more information, contact us.
* * *
April 28, 2000 -- American General was revealed this week as charging “race-based additive premiums” on industrial life insurance. According to Florida insurance commissioner Bill Nelson, “although many insurance companies stopped selling such policies years ago, some insurers who were charging different rates based on race did not reduce the higher premiums on existing policies when they eliminated such pricing on new policies.” Talk about a compliance culture -- “Honey, we forgot to eliminate the race-based premiums.” As set forth below, this is a company that was granted a federal savings bank charter in 1999...
May 26, 1999 -- Barely three weeks after the Office of Thrift Supervision gave it a savings bank charter, American General has been hit with a $167 million punitive damages award to 29 consumers for misleading them on terms of credit agreements. Source: Communications Daily, May 21, 1999. A jury in the Chancery Court of Jones Country, Mississippi, also ordered American General to pay each plaintiff $500,000 in compensatory damages. All of these predatory lending issues were in the record before the OTS when it decided to give the savings bank charter -- will the approval now be rescinded or amended?
Update of April 30, 1999 -- OTS Ignores American General's MorEquity's Lending, and even American General's "Twenty Percent of Loans to Low and Moderate Income Borrowers" Pledge.
Ameican General, a Houston-based insurance company with $105 billion in assets, applied to the OTS in early 1998 to convert its existing Utah Industrial Loan Company to a savings bank charter. American General owns a major, nationwide finance company, that lends at higher than normal interest rates, disproportionately to minorities. ICP submitted this critique to the OTS. American General responded with a pledge to the OTS that 20% of the proposed thrift's loans would to be low- and moderate-income borrowers. ICP replied that this pledge would not address the issues of predatory lending, nor of the appropriate CRA assessment area for American General's proposed thrift.
Months later, American General shifted its proposal. While still seeking to become a unitary thrift holding company, it now proposed to gain this status by acquiring Standard Pacific, F.A., a near-dormant thrift in California. ICP quickly commented to the OTS that its previous analysis (and meeting request) should be carried over to American General’s modified application. The OTS ruled that the meeting request was not carried over. The California Reinvestment Committee commented against the application.
On April 28, 1999, during the pendency of legislation to abolish the unitary thrift charter, and after having done a "shake-up" of its DC staff that was scrutinizing the many pending application, the OTS hauled off and approved American General's application. American General's CRA pledge was not mentioned in the OTS' press release or approval order. The OTS' press release stated that "[t]aking into consideration comments from community groups, OTS is requiring the thrift to beef up its compliance management program and submit for approval a proposed methodology for collecting loan distribution data for the savings bank's credit card and other consumer lending. It also has to... each quarter report to OTS on the various lending programs, including to low- and moderate-income borrowers."
Because the OTS withholds most of its correspondence with applicants, it is impossible for now to know what action, is any, the OTS took on MorEquity and American General Finance, beyond a boiler plate requirment for more compliance management. Here is an example of the issues ICP raised to the OTS about MorEquity, from the Charleston (W.V.) Gazette of March 1, 1998, Residents Live Nightmares Through Loans:
Iris and the late Robert Bostic bought a house on Piedmont Road, near the end of the West Virginia Turnpike, 27 years ago. They never even had a mortgage. Last August, Iris needed $500 for a few extras during her sister’s visit to Charleston. So she visited the offices of American General Finance at Patrick Street Plaza. ‘They asked my granddaughter to leave. Then, they talked me into taking out a $31,000 loan,’ she said... Bostic decided she’d better get life insurance just in case. ‘If something would happen to me, they would have to take the house to pay off the loan. I hope I don’t lose my home,’ she said last week.
But American General Finance, based in Evansville, Ind., never got Bostic her insurance. She was too old. Five months later, the company refunded the $4,274 she had paid for the insurance... ‘American General taught me a lesson,’ Bostic said. ‘You can’t believe everything they tell you’... Mike Pauley, branch manager for American General Finance in Charleston, said his company does not try to deceive anyone. Pauley said he could not talk about Bostic’s loan since it was ‘in litigation.’ Bostic’s deal with American General Finance requires her to pay $498 a month for 10 years. ‘We paid off the mortgage on our house years ago. I never entered into any major loan transaction like this in my life,’ she said last week. Today, Bostic lives on Social Security and a United Mine Workers pension for widows...
...Four years ago, the Hagers wanted a small loan to replace home furnishings and children’s clothing burned in a house fire. American General Finance lent the couple $2,500 after they pledged their mobile home as security. In 1995, American General Finance gave them another three loans, bringing the total for all four loans to $5,329. Their lawsuit accused American General of ‘flipping,’ or renegotiating loans, thus adding thousands of dollars in refinancing fees, document fees, title examination fees and credit insurance payments. Today, the Hagers own American General Finance $18,090, more than triple the value of all loans they received, the suit says. It accused the finance company of breaching U.S. fraud and debt collection laws.
ICP asked: is this the kind of company to which the OTS should give a thrift charter? In its April 28, 1999, approval order, the OTS does not mention these issues, but states that it is requiring a "beefed up" compliance plan.
More strange is the OTS' decision not to disclose American General's CRA pledge in its press release or order. The OTS did disclose the commitment of the Travelers Group while applying to get a thrift charter in 1997; perhaps the OTS does not want to be targeted by Congressional Republicans for requiring CRA commitments.
But American General will be pitching credit and deposit products through its 18,000 insurance agents. The "compliance culture" at American General is questionable -- in 1999, American General has settled, for $246 million, allegations of churning and other predatory insurance practices. (Meanwhile, in television advertisements during the NFL Superbowl, American General told the public it would help them "live their dreams"). Whether the OTS, with its diminished examinations staff, will be able to keep up with this now-FDIC insured behemoth -- is questionable.
One further, less negative, precedent in the OTS' American General approval order is that fact that "[t]he Applicants and the Savings Bank must submit any proposed major deviations or material changes from the [business] plan... for the prior, written non-objection of the Regional Director... [T]he OTS may require public notice, consider public comments and arrange meetings with commenters in connection with its review of any such request...". Order at Paragraph 7.
The OTS appears to want to put these issues off until later (certainly convenient for the applicants, since Congress is considering "grandfathering" all existing unitary thrifts, even if Congress does close the loophole). In another illogical condition, the Order makes clear that the OTS did not require Grange to submit, prior to ruling on its application, a "compliance management plan." Order at Paragraph 11. The Approval Order allows American General to file this plan 60 days after the consummation of the proposed transaction -- that is, after the OTS has already approved the application. Why would the OTS rule on an application until such a plan had been submitted? Why the rush? (See above, and the progress of financial modernization legislation, summarized and updated on ICP's CRA Reporter Page).
The OTS moving to approve this insurer's application before getting a compliance plan is particularly troubling given the fair lending issues, that are raised when insurance companies use their insurance agent networks, which most often already disproportionately exclude low- and moderate-income areas and people of color from their market, to pitch credit products. See, e.g., ICP's analysis of Shelter Mutual Insurance's pattern of insurance underwriting, summarized on ICP's Insurance Redlining page. See also ICP's overview on the numerous other thrift charter applications by insurance and other companies currently pending at the OTS, on ICP's CRA Hot Issues page.
ICP finds this OTS approval order troubling, as it did the public report that that the "Office of Thrift Supervision Director... played down the weight that public comments would have on the agency's review of a [CRA strategic] plan." American Banker, April 27, 1999. Whether characterized as "giving weight to public comments," or fulfilling its duties under the CRA and fair lending laws, OTS unitary thrift charter approvals, particularly for insurers, that put off into the future the submission of compliance plans and adoption of an appropriate CRA plan and assessment area -- are inappropriate. ICP is pursuing these issues, which will be updated on this site.
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