Opposition to Citigroup - Associates First Capital Corp. by Inner City Press

Citigroup- & Associates First Capital/Citifinancial

Click here for Inner City Press' front page; click here for ICP's Citi-EAB protest, 3/01

Click here for more general Citigroup Watch; for or with more information, contact us.

ICP has published a (double) book on the topic of predatory lending. The Pittsburgh City Paper of Dec. 11, 2003, says that the "novel Predatory Bender: A Story of Subprime Finance may, in fact, be the first great American lending malfeasance novel," and mentions CitiFinancial. Click here for that review; click here for sample chapters, an interactive map, and ordering information.]

May 27, 2004 update: vindicating many of ICP's assertions, on May 27, 2004, the Federal Reserve announced a cease-and-desist order against CitiFinancial, for predatory lending and for what the Fed refers to as "misleading examiners" -- basically, as documented by ICP in real time throughout the Web site, Citigroup told employees to lie, threatened to sue whistleblowing employees, and tried to hide and shred documents. Click here for the Fed's 5/27/04 press release, click here for a PDF of the Fed's 14 page order; click here for ICP's current CitiWatch report (the May 27, 2004 Update describes how the world's biggest bank is still run by predatory lenders, document shredders, silencers of whistleblowers....For or with more information, contact us.

Inner City Press / Community on the Move, along with other community organizations, has become increasingly concerned by Citigroup's involvement in questionable subprime (high interest rate) lending. From September through November, 2000, ICP filed comments opposing Citigroup's applications to acquire the scandal-plagued subprime lender, Associates First Capital Corporation. As documented in the portions of ICP's comments reproduced below, Citigroup disproportionately denies applications from people of color for normal interest rate loans, while its higher rate lender, CitiFinancial, and the company that it is merging into CitiFinancial, Associates, target these same communities with high interest rate loans. Citigroup's Associates applications, however, were not subject to the Community Reinvestment Act. On November 30, 2000, the Office of the Comptroller of the Currency, the FDIC and the New York Banking Department all simultaneously approved Citigroup's applications to acquire The Associates. Citigroup immediately "consummated" the acquisition. ICP has sought judicial review of the approval granted by the Missouri Department of Insurance, and has inquired into the other agencies' approvals, under the Freedom of Information Act (responses are reviewed below). ICP will be closely scrutinizing Citigroup's practices, both in subprime and community lending (on this page), and more generally (on ICP's ongoing Citigroup Watch page). The issues will also be raised (and reviewed) in connection with Citigroup's proposal to acquire European Ameican Bank, announced on February 12, 2001. Developing...

See also, "Citigroup's Purchase Of EAB Challenged," by Tania Padgett, Newsday, March 13, 2001, Pg. A46; "Group Launches Challenge to Citi-EAB," by Liz Moyer, American Banker, March 13, 2001, Pg. 3; "EAB-Citigroup Merger Plans Questioned," by Tania Padgett, Newsday E-dition, March 12, 2001; "Consumer Group Challenges Citigroup's EAB Acquisition," Reuters, March 12, 2001; "Community Group Challenges Proposed Citigroup-EAB Deal," by Eileen Canning, Bridge News, March 12, 2001; FTC Sues Citigroup Unit, by Rebecca Knight, Financial Times (FT.com), March 6, 2001; Citigroup Is Cleared To Buy Mortgage Firm, International Herald Tribune, December 5, 2000, Pg. 14; After Associates, Groups Vow Not To Let Citigroup Rest, by Jonathan Nicholson, Dow Jones News Wires, December 4, 2000; Citigroup Is Cleared To Buy Loan Firm; Associates First's Lending Practices Drew Fire, by Kathleen Day Washington Post December 1, 2000, Pg. E3; Citigroup Merger OK'd By Regulators, The Plain Dealer (Cleveland), December 1, 2000, Pg. 3C; Citigroup Completes Purchase of Associates After Federal Nod, Deseret News (Salt Lake City), December 1, 2000, Pg. D9; Citigroup Closes Associates Deal, Commercial Appeal (Memphis), December 1, 2000, Pg. C2; Citi-Associates Wins OK from Regulators, by Rob Blackwell and Dean Anason, American Banker, December 1, 2000; Citigroup gets nod on Associates deal, by Jaret Seiberg, The Daily Deal, November 30, 2000; Citigroup - Associates Gets Regulatory OK's, by Marcy Gordon, Associated Press, November 30, 2000; Law Denies CRA Clout to Citi-Associates Foes; Federal Regulators Cannot Consider the Issues, by Rob Blackwell, American Banker, November 27, 2000, Pg. 1; Activists Can't Block Citi's Purchase, by Jaret Seiberg, The Daily Deal, November 27, 2000; Citigroup Associates Deal On Track, Despite Longer Review, by Jonathan Nicholson, Dow Jones Newswire, November 16, 2000; Citigroup Faces Attacks on Loan Record, by Paul Beckett, Wall Street Journal, November 13, 2000, Pg. C19; Viewpoint: Citi - Associates Deal Proves Financial Modernization Oversight Inadequate, by Matthew Lee, American Banker, November 10, 2000, Pg. 12; Consumer Groups Attack Citigroup, Associates Lending, by Mary Kelleher, Reuters, November 10, 2000; Citigroup Unit Reforming Lending Practices to Clear Way For Merger, Critics Dissatisfied; No Hearing, Las Vegas Sun, November 8, 2000; Citigroup Says It Will Address Predatory Loans, Houston Chronicle, November 8, 2000; Citigroup Planning Changes After Merger; Some Practices Will Be Eliminated, by Jim Fuquay, Fort Worth Star-Telegram, November 8, 2000; Citigroup To Improve Consumer Lending Practices, by Mary Kelleher, Reuters, November 7, 2000; Citigroup Planning Change After Merger, by Jim Fuquay Fort Worth Star-Telegram, November 8, 2000; Citigroup To Improve Consumer Lending Practices, by Mary Kelleher, Reuters, November 7, 2000; New York Banking Department Sets Meeting on Citigroup-Associates Acquisition, by Richard Cowden, Bureau of National Affairs Banking Daily, October 26, 2000; Activist Seeks Nevada Hearing, by Richard Velotta, Las Vegas Sun, October 24, 2000; Environmentalists Target Citigroup, Inter Press Service, October 20, 2000; Bank Merger OK'd Despite Group's Protest, Pierre (S.D.) Capital Journal, October 19, 2000; Citigroup Wins South Dakota Regulatory Approval for Associates, Bloomberg News, October 18, 2000; In Matters of Race and Environment, Citigroup Puts Profits Over Ethics, The Daily Princetonian, October 16, 2000; Organization Protests Bank Merger, Pierre (S.D.) Capital Journal, October 11, 2000; Citigroup - Associates Opposed (ICP Granted Discovery Rights), Bureau of National Affairs Banking Daily, October 11, 2000; Citigroup's Purchase of Associates Challenged in State Hearing, Bloomberg, October 10, 2000; Citigroup Purchase Is Facing Challenge, Fort Worth Star-Telegram, October 7, 2000; Agencies Extend Citi-Associates Public Comment Period, Dow Jones Newswires, October 5, 2000; Consumer Group Targets Citigroup Deal, Milwaukee Journal Sentinel, October 5, 2000, Pg. 3D; Consumer Groups Fight A Citigroup Acquisition, Philadelphia Inquirer, October 1, 2000; Consumer Group Still Finds Ways to File Objections to Citigroup-Associates deal, Dallas Morning News, September 26, 2000, Pg. 3D; Reject Citi-Associates Deal, Group Urges, American Banker, September 26, 2000, Pg. 19; Consumer group opposes Citigroup-Associates deal, Reuters, September 25, 2000; and Options to Protest Citigroup-Associates Merger Cut by New Law, Bloomberg, September 25, 2000.

Update of May 19, 2003: Delayed Documents Display Citigroup's Dominance of its Regulators: last week we received from the Office of the Comptroller of the Currency a response, dated May 12, 2003, to our FOIA appeal of February 12, 2001. That's not a typo -- it took the OCC more than two years to respond to a FOIA appeal. The underlying request concerned Citigroup's acquisition of Associates First Capital. Among the documents provided on appeal -- several hundred pages that were improperly withheld back in 2000-01 -- were OCC emails showing the endgame just before the OCC approved Citigroup's application. On Nov. 28, 2000, OCC general counsel Julie Williams sent out a message: "Fire drill. I talked with Jerry about the timing on Citigroup and he wants us to try to get done by sometime on 11/30. So, I need a decent draft of the whole decision to take home on Wednesday evening." The "Jerry," it seems clear, is Jerry Hawke, now as then the Comptroller.

At 1:56 p.m. on November 30, Ms. Williams got an email stating that

"Jerry has not provided me or Greg comments... I have not caught up with Barbara Kent (NY State Banking) yet to find out if they're on for a 2 pm approval. We have traded messages several times. However, I heard from FRB folks (who have a Reg K approval on this deal) that [REDACTED]. Carl Howard [Citigroup lawyer] just called... He says Barbara Kent is meeting on an 'exclusive' basis with the Wall Street Journal right now. She won't be doing a press release today, but he says 'We believe the decision will still occur at 2, as she said it will.' He's not sure when a document will be made public today or tomorrow. He expects to get a letter today, however. It's going to be 1 sentence and she's read it to Carl. I asked Carl to let us know when NY acts.

"The FSA (England) closed its office today without approving this; they are expected to act tomorrow at 10:30 am. They hope to do the closing at 5:30 US time) on Friday. They wouldn't act without the FRB acting. The FRB said staff could approve once they had the non-objection letters from the FDIC and OCC. Ray was called by Prince and Sweet and had me in on the call. They asked us to speak to FSA about our timing but the office had closed when they tried to patch us in. FRB staff also had had a number of conversations with FSA about all of this, but couldn't comfort them."

What does it all mean, you ask? Well, Citigroup "closed" / consummated the deal at 5 p.m. on November 30. From the above OCC email, three hours prior to that (stating that the FSA has closed for the day), it now appears that Citigroup closed the deal without the required FSA approval (or perhaps they reached a regulator at home). The agency's collaboration with Citigroup -- being "managed" by Citigroup's Carl Howard, being "patched in" to the FSA by Citigroup's Chuck Prince and outside lawyer William Sweet -- is troubling. So too are the OCC messages quoting from ICP e-mails the OCC obtained from recipient the OCC calls "confidential sources," and various requests to withhold these communications (resulting, it appears, in the more than two year delay). Like we said, better late than never. Though just barely.... Until next time, for or with more information, contact us.

Update of June 18, 2001: On June 18, ICP submitted comments to the Federal Reserve Board and the Office of the Comptroller of the Currency, including a just-obtained affidavit by long-time CitiFinancial employee Gail Kubiniec, alleging a multitude of predatory practices at CitiFinancial. The affidavit is extensive quoted on ICP's ongoing CitiWatch page, Report of June 13-14, 2001. The comments (similar to those ICP submitted the same day on Citigroup-Banamex) also put into evidence recent reports of Citigroup's money laundering for ex-Argentine president Menem, and, apparently, for the Juarez drug cartel. Citigroup's EAB applications to the Fed and OCC continue to pend; a Citigroup June 8 response to the Fed's June 5 questions requests "confidential treatment" for virtually all information. It's hard to imagine the Fed legitimately approving Citi's EAB application until the troubling issues in the Kubiniec affidavit are inquired into and addressed. Developing... For or with more information, contact us.

Update of April 9, 2001: Citigroup's November 30, 2000, acquisition of Associates First Capital Corp. has, beyond the other harms identified below, led to a situation in which the largest bank in the United States is lobbying against consumer protection initiatives, wherever they are proposed. Last week, in Philadelphia, a pared-down proposal passed, 16-0: subprime lending by banks was excluded from coverage, at Citigroup's request. The Philadelphia Daily News (4/5) reports that "[f]or the last three months, a Citigroup lobbyist has been trying to get city lawmakers to kill the pending bill. The lobbying effort included retaining two close friends of Mayor Street -- public-relations executive Bruce Crawley and attorney Carl Singley -- to press the issue. Lobbyist Nick Maiale, a South Philadelphia ward leader with ties to Council President Anna Verna, was hired as well.... The lobbying effort also includes telling lawmakers about Citigroup's business contributions to the city." Philly Mayor John Street has implied he may veto the bill. And the Daily News of April 7 quotes an "uninvolved" lobbyist that he'd "like to say that democracy triumphed, but what happened was the [Citigroup] lobbyists were no good."

Citigroup had even more success in Chicago, where it hired John Satalic, Mayor Daley's former chief of staff, to lobby the Cook County Board Finance Committee, leading last week to the rejection of two amendments to its pending Predatory Lending Ordinance that would have included single-premium credit life insurance within the definition of predatory practices. Citigroup profits extensively from this product, and has become its most prominent defender. The Chicago Tribune of April 7 reports on Satalic's lobbying, "on behalf of Citigroup," and says that "officials of New York-based Citigroup could not be reached for comment." Not surprising, that Citigroup wouldn't comment...Citigroup has still not answered the Federal Reserve's and NYBD's questions about its subprime lending, in the Citigroup - EAB proceeding...For or with more information, contact us.

Update of April 2, 2001: Inner City Press has received yet another response from the FDIC, to ICP's December 4, 2001, Freedom of Information Act (FOIA) request about the FDIC's approval of Citigroup - Associates. In this response, the FDIC has taken to redacting (blacking-out) even the To and From lines on the e-mails it has provided.

An undated FDIC document headed "Questions and Answers, Citigroup / Association Transaction" recites that "[a]t a meeting on October 2, Citigroup's spokesperson described the transaction emphasizing that it was an acquisition, not a merger, and that Citigroup operating policies would be imposed on Associates' activities. It was admitted that AFS had problems with regulatory compliance, however, it was pointed out that most of AFS's compliance problems occurred outside of its bank subsidiaries."

This presentation ignored that one of Associates' three banks, Associates National Bank (Delaware), had been sued for discrimination by the Department of Justice, and had (and has) a rare Needs to Improve rating under the Community Reinvestment Act.

In an October 5, 2001, e-mail, FDIC staffer Douglas H. Jones informed John M. Lane that "I talked to Bill Sweet [Citi's outside counsel] and told him we decided to extend the comment period by two weeks. He had no comment other than to thank us for the heads up."

Another FDIC e-mail, of October 19, 2001, recites that "I contacted Stacie McGinn of Skadden Arps... She stated that Citigroup has been meeting, and will continue to meet, with community groups (including those that made comment) throughout the country. She will provide a list of the meetings held and scheduled. She was unable to confirm that a meeting with Robert Rubin (Vice Chair of Citigroup) is scheduled, but she will find out and notify us."

As noted, Mr. Rubin (who employment by Citigroup is often cited as providing some assurance of consumer protections) never addressed the Associates issues, last Fall, or now, after the Federal Trade Commission has sued Citigroup for predatory lending...

Other Citigroup representatives did, however, go and schmooze the FDIC, on November 3, at 1 p.m., "in the conference room across from the Chairman's office." (E-mail of November 2, 2001, Mark J. Jacobsen to Stephen Cross and Tim Burniston). Despite being willing to meet, ex parte, with Citigroup, the FDIC and OCC denied all requests for a public hearing last Fall, and the Federal Reserve and OCC have not ruled on requests for a hearing on Citigroup - EAB, even after the FTC has sued Citigroup for predatory lending....

Update of March 26, 2001: For an update on the Citigroup - European American Bank proceeding (comments are due by April 2), click here. Citigroup's SSB continues to underwrite questionable subprime (high interest rate) loans, for other lenders. At week's end, SSB did an underwriting for GreenPoint Financial Corp., of $133 million manufactured housing loan asset backed securities...

Update of March 19, 2001: Our focus, for the coming weeks, is on Citigroup's applications for regulatory approval to acquire European American Bank. We've created a separate page for this proceeding; click here to view ICP's second comment, of March 19, 2001. See also, "Citigroup's Purchase Of EAB Challenged," by Tania Padgett, Newsday, March 13, 2001, Pg. A46; "Group Launches Challenge to Citi-EAB," by Liz Moyer, American Banker, March 13, 2001, Pg. 3; "EAB-Citigroup Merger Plans Questioned," by Tania Padgett, Newsday E-dition, March 12, 2001; "Consumer Group Challenges Citigroup's EAB Acquisition," Reuters, March 12, 2001; "Community Group Challenges Proposed Citigroup-EAB Deal," by Eileen Canning, Bridge News, March 12, 2001. For or with more information, contact us.

Update of March 12, 2001: On March 6, the U.S. Federal Trade Commission sued Citigroup and its subsidiaries (including Associates First Capital Corp., which Citigroup acquired on November 30, 2000) for predatory lending. On March 12, Inner City Press / Community on the Move filed comments opposing Citigroup's applications to acquire European American Bank, with the Federal Reserve Board, the Office of the Comptroller of the Currency, and the New York Banking Department. Click here to view ICP's comments. Until next time, for or with more information, contact us.

Update of March 5, 2001: Citigroup's compliance problems are by no means limited to the Associates First Capital units it bought on November 30, 2000. The Senate Government Affairs Committee last week criticized Citigroup (and Chase) for money laundering. As to Citigroup, the Committee found that a correspondent account held at Citibank by M.A. Bank, a subsidiary of Argentine financial group Mercado Abierto, was used to launder $7.7 million in drug money for Mexico's Juarez cartel between 1997 and 1998. Even though the U.S. government filed seizure warrants seeking to attach those funds in May 1998, Citibank kept the account open until March 2000. In the intervening 22 months, more than $302 million moved through the account...

Similarly, the conflicts created by Citigroup's "conglomerate" structure are becoming more apparent: most recently, in connection with the bidding war for ANB Amro's European American Bank, "won" by Citibank, N.A. on February 12. Citigroup's Salomon Smith Barney had been advising North Fork Bank on NFB's bid for EAB, and only withdrew, citing the (obvious) conflict, late in the process. Citigroup claims that Citibank used "in-house" M&A analysts, and not SSB. Is that credible?

On the consumer front, complaint continue to pour in about Citigroup's "Primerica" unit. A recent example:

Subj: Citigroup
Date: 2/26/01 3:57:31 PM Eastern Standard Time
From: [ ] (deleted at correspondent's request)
To: CitiWatch [at] innercitypress.org

Dear Inner City Press

...We recently refinanced using someone in our church body who passed themselves off as a "personal financial analyst," but was really a salesman for Primerica / Travelers. The interest rate offered was higher than the one we already had and we have a spotless credit record. When we questioned this, the rep told us that "interest rates don't matter," "it's all smoke and mirrors," and "this bank calculates the interest differently." To make a long story short, we have come to realize that this bank does nothing differently but scam people, and if we want to get refinanced yet again, we are subject to a stiff prepayment penalty...

How to reconcile this with Citigroup's claims -- for example, to the Cincinnati Enquirer of February 21, 2001: "We have gone across the country, talking with community groups to help develop the best policy. We disagree that we should not be in the communities, because we have been the one to pave the way to give loans to people who don't qualify for prime rates" -- Leah Johnson, director of public affairs for Citigroup. Those "go[ing] across the country talking with community groups" have included Citigroup "Chief Administrative Officer" Charles Prince, and Citifinancial general counsel Martin Wong (who most recently has declined the settle the case of a Texas woman who hung herself, after being subjected to Associates First Capital's harassing collection practices -- more on this in coming weeks). Noticeably absent from the road show / outreach has been ex-Treasury Secretary Robert Rubin. A March 2 SEC filing by Citigroup disclosed Mr. Rubin's 2000 compensation: $45.3 million. Sandy Weill got $127.8 million in salary, bonus, stock and stock options...

Citibank - European American Bank is about to heat up: "Watch this space."

Update of February 28, 2001: Documents reflecting the agencies' consideration of Citigroup's applications to acquire Associates First Capital Corporation, which ICP requested on December 4, 2000, under the Freedom of Information Act, continue to trickle in. In our Report of Feb. 5 (below), we reviewed the OCC documents; last week, the FDIC's first response.

Now, the FDIC has forwarded 254 more pages, some of them blacked-out with a magic marker. For example, an October 13, 2000, e-mail from FDIC staffer to Mira N. Marshall, to the FDIC's New York office, asks: "Are you keeping a count of how many commenters are requesting a hearing? Kevin [Hodson] thought you were, but just wanted to be certain. The first issue DOS [Division of Supervision] is trying to decide is whether there is any basis to hold a public hearing." This is followed by two lines entirely blacked out. The FDIC's New York office responded: "Yes, we are tracking the issues presented in the comment letters. Another individual in the Regional Office reviewed 26 of the 28 comment letters and summarized the issues... The other 2 comment letters are from Inner City Press and are, by far, the most comprehensive in scope. I am reviewing those 2 comment letters separately to highly the numerous issues raised." From this e-mail, an entire paragraph has been redacted (our ears are burning, even as we prepare to appeal the redaction).

In the spirit of minutiae, the FDIC/DC's interest became on October 4, 2000: Steven Fritts e-mailed Tim Burniston (ex of the OTS) and Bob Mooney: "DOS is inquiring as to what DCA Washington staff person is assigned to the case? Do you have someone in mind?" Mr. Mooney replied on October 6: "I don't think this is my call to make .. Is it?" Mr. Burniston chimed in on October 10: "Bob, you certainly can choose to assign this to a staff member if you like. If you would rather handle it yourself, that is fine also. I just wanted to give you the option." Mr. Mooney then e-mailed Mira Marshall: "Steve F. and Tim are handling the Citigroup Notice of Change in Control concerning Associates. I have not received any written materials on it... Can you make yourself available to Steve Fritts and Tim to work on whatever may arise concerning this transaction? I presume any media contact or contact with DOS would be made only through Steve Fritts." Mr. Fritts then e-mailed Mira Marshall: "I will forward the results of the S. Dakota hearing as soon as I receive them." Bit the FDIC's "memorandum which recaps the outcome of the public hearing in Pierre, South Dakota, on the application of Citigroup to acquire Hurley State Bank" -- is withheld in full... The FDIC's cover letter states that it is withholding 131 pages, and that "some additional records that may be responsive to your request presently are under active review."

For more, click here for ICP's ongoing (and broader scope) Citigroup Watch.

Update of February 20, 2001: Less than three months after "consummating" its acquisition of the subprime lender Associates First Capital, Citigroup has announced another major deal in the United States -- a deal that, unlike The Associates, will be subject to Community Reinvestment Act review. On February 12, Citigroup announced that it intends to apply for regulatory approval to buy European American Bank (EAB), and its 97 branches. Thirty of these branches are in New York City; 67 are in the NYC suburbs of Long Island. The deal would further concentrate the New York market, making Chase and Citi far and away the largest banks, reducing competition and raising prices and fees. Citi would also close a number of branches.

Soon -- anywhere from one to four weeks from now -- Citigroup will submit applications, subject to public comments, to regulators. It is anticipated that Citigroup will file its applications at the Office of the Comptroller of the Currency (OCC) and the New York Banking Department, and perhaps elsewhere.

When Citigroup acquired the subprime lender Associates First Capital in the Fall of 2000, over 100 groups commented to the OCC, opposing the deal. The OCC said that is was constrained, and could not consider Citi's or Associates' records under the Community Reinvestment Act, which requires fair lending in low- and moderate-income neighborhoods. This Citi-EAB transaction IS subject to the CRA. The unresolved Associates issues will be raised, along with branch closures, antitrust, and the so-called "micro-mortgage" issue. When Citicorp and Travelers proposed to merge in 1998, ICP and others documented Citicorp's disproportionate exclusion of communities of color, including in The Bronx. The New York Banking Department (the "NYBD") required a commitment from Citigroup, to increase its lending in majority-minority census tracts in New York State.

Citigroup claims to have increased its lending dramatically in majority-minority census tracts, and to have complied with the 1998 commitment. However, a close review of Citigroup's 1999 HMDA data shows that the vast majority of these purported improvements consist of loans, under $1,000, reported as home improvement loans.

Citibank, N.A., Citigroup's bank in New York City, supervised by the Office of the Comptroller of the Currency, reported making 1,931 HMDA-reportable loans in The Bronx in 1999. But fully 1,751 (or over 90%) of these were home improvement loans.

These 1,751 home improvement loans in The Bronx were generated off 1,805 applications, for a total dollar volume of $4,064,000 -- an average of $2,252 per loan application, much lower than other lenders' average home improvement loan in The Bronx. This is clearly a program of "micro-loans" directed as majority-minority census tracts, in order to purportedly comply with Citigroup's 1999 commitment, in terms of number of loans, but not dollar volume. The $4 million that Citibank lent in The Bronx under this program in 1998, claiming thereon over 1,000 loans, is dwarfed by Citigroup's (and Citibank's) "real" mortgage lending, in Manhattan below 96th Street, for example. Even in The Bronx, note that Citicorp Mortgage, with normal-size loans, made, in 1999, 44 loans to whites, and only six to Latinos, and only five to African Americans.

Citigroup's disparities in other markets are analyzed below on this page.

Citigroup has proffered an "explanation" of the micro-mortgages, claiming that in order to re-enter markets like The Bronx, it began to offer small home improvement loans, to establish "relationships." Also, Citigroup has been making presentations about its Associates "reforms," to religious organizations (including those which have filed shareholders resolutions for consideration at Citigroup's April 2001 shareholders' meeting), foundations, and others. It has been suggested that Citigroup squarely address the Associates issues in its EAB applications; we shall see. We will be running updates.

Regarding the FDIC's "processing" of Citigroup - Associates, ICP has now received two responses from the FDIC to ICP's December 4, 2000, Freedom of Information Act (FOIA) request. The documents released include various FDIC e-mails. These reflect coordination between the OCC and FDIC, regarding both extension of the comment periods; a sudden (and belated) recognition, in mid-November, that Section 307(c) of the Gramm-Leach-Bliley Act required the FDIC and the OCC to request comments from state insurance regulators; Citigroup's unwillingness to tell the FDIC where its / Travelers' insurance companies are "domiciled" -- and, despite this, an accomodative relationship between the FDIC and Citigroup. For example, an e-mail from Mark P. Jacobsen of the FDIC, to other staffers on November 16, 2000, when the FDIC asked Citigroup five questions about subprime lending, states the "you can have Sweet [Citigroup's outside counsel] call me if he has any questions or want to vent as to why we have handled this the way we have." Another e-mail, on November 17, from the FDIC's John M. Lane, recites that "Pam Shea and I returned a call to Carl Howard of Citigroup and he indicated that a response (about 10 pages) to our five questions would be provided around 4 PM today. He has placed a call to Steve Cross and offered to discuss the letter around 5:45 P>M today... We also discussed some additional state insurance commissioners that we intend to notice beyond the two, Connecticut and Texas, that Citigroup had suggested."

The documents also show an awareness of (though, in the end, a dismissal of) Congressional interest in the transaction. An e-mail from Robert C. Fick of the FDIC, to other staffers, on November 30, 2000 (when Citigroup's applications were approved), states: "I heard some comment (unverified) that Congresswoman Waters was intending to ask the FDIC to delay our decision."

The FDIC's interim FOIA determination letter states that 279 pages are being withheld, and that "Our record searches remain in progress. Additional information will be provided to you as soon as it is available." An incongruity: the FDIC has provided summaries of the comments of "61 sources" -- which do not include ICP, which commented, extensively, from September 25, 2000, onwards. Apparently, the FDIC intends to withhold these documents from ICP -- or to heavily redact them. Developing...

Update of February 12, 2001: Word has reached Inner City Press of a $1.3 billion predatory consumer practices lawsuit just filed in the Second Judicial District of Jones County, Mississippi, against First Family, Kentucky Finance, Associates -- and Citigroup. Citigroup moved to settle a class action that had been pending against Associates in Georgia, and settled the Department of Justice's discrimination lawsuit against Associates National Bank. But, clearly, there are more lawsuits coming...

While acquiring Associates First Capital in late 2000, Citigroup told many community groups that it's not really responsible for the lending practices of IMC, a Tampa-based subprime lender invested in, and then purchased, by Citi CEO Sandy Weill's son Marc. Well, on February 5, 2001, CitiFinancial Mortgage issued this press release, from Tampa:

CitiFinancial Mortgage Company ("CFMC"), Servicer for the IMC Home Loan Equity Trusts (the "Trusts"), has provided to Investors the following update with regard to the calculation and reporting of unrecoverable delinquency advances.

The Servicing Agreements governing the various Trusts provide that each month the Servicer shall advance to the Trustee interest on Home Equity Loans that are delinquent (a "Delinquency Advance"). The Agreements also provide that the Servicer is not required to make a Delinquency Advance if the Servicer determines that such Delinquency Advance is not recoverable.

In accordance with the Servicing Agreements, CFMC determines whether a Delinquency Advance for a delinquent loan will be recoverable before making any such advance. Recoverability is determined by performing an equity analysis on the loan. The equity analysis begins with the estimated gross proceeds expected upon liquidation of the real property that secures the delinquent loan. This estimate is a percentage of the appraised value given to the real property at the time of origination of the loan. The percentage is based upon the historical gross liquidation proceeds of real property already liquidated. From this figure is subtracted (i) the principal balance outstanding (and the principal balance outstanding on the first mortgage if the loan in issue is secured by a second lien) and (ii) advances already made for the delinquent loan in issue. If there is any equity in the property, the Delinquency Advance is considered recoverable and the Delinquency Advance is made for the particular loan... [I]n conducting its historical review, CFMC discovered that the services software was advancing all prior months' interest that had previously been determined to be unrecoverable when a single payment was received and applied to a loan that was more than 120 days delinquent. In other words, these prior months' Delinquency Advances were being made regardless of the fact that (i) the loan remained delinquent and (ii) the equity analysis did not show recoverability of the Delinquency Advance. This programming was corrected. Delinquency Advances for 120+ Delinquent Loans that receive a payment will not be advanced until (i) the loan is current or (ii) the Delinquency Advance is determined to be recoverable.

--Emphasis added.

In other words, "oops!".

Update of February 5, 2001: On December 4, 2000, Inner City Press submitted a Freedom of Information Act (FOIA) request to the Office of the Comptroller of the Currency and to the FDIC for documents related to Citigroup - Associates, which, as reflected below, the OCC had approved on November 30, 2000. Under a cover letter dated January 29, 2001, the OCC has responded, providing over 1,000 pages of documents, while withholding others. While we continue to review the documents, and to prepare an appeal, of the (unidentified amount of) withheld documents, the following may be of interest to readers of this Report.

On October 26, 2000, Comptroller John Hawke wrote to Rep. Maxine Waters, explaining how "limited" the OCC's scope of review would be, under the Change in Bank Control Act, and highlighting that

"It is interesting to note that the processing governing the acquisition of Associates Corporation is different today than it was prior to the enactment of the Gramm-Leach-Bliley Act of 1999 ('GLBA'). Under GLBA, Citigroup, as a financial holding company, may acquire companies such as Associates Corporation without the prior approval of the Board of Governors of the Federal Reserve System ('FRB'). Prior to GLBA, Citigroup's acquisition of Associates Corporation would have been reviewed and subject to the approval of the FRB under section 4(c)(8) of the Bank Holding Company Act. Under this provision, the FRB would have reviewed the transaction under a closely related to banking and a public benefits test. Particularly with regard to the public benefits test, the FRB would have considered whether the transaction produced benefits to the public that outweigh possible adverse effects. Adverse effects included undue concentration of resources, decrease or unfair competition, conflicts of interest, and unsound banking practices. After GLBA, for a qualifying financial holding company, no application is required for this acquisition and thus the public benefits test is not applied to the transaction. In addition, there will be no notice and public comment period by the FRB or an opportunity to request a hearing from the FRB."

It appears that Comptroller Hawke was trying to emphasize, to Rep. Waters, how it was the passage of the GLB Act which is to blame for the lack of scrutiny on Citigroup - Associates. Of course, it was Citicorp - Travelers, and Citigroup's subsequent lobbying, that in large part led to the passage of the GLB Act in 1999...

The OCC has also provided, as it must under FOIA, a series of responsive "electronic" record, primarily e-mails that forwarded, within the OCC, comments from some community groups (including, in full disclosure, ICP). These include a message, dated September 15, 2000, attaching statements that ICP "e-mailed to key CRA advocates across the U.S. regarding [a] recent conversation with a 'guy from the OCC' about Citi and Associates." Ignoring (for now) the "Spy - Counterspy" aspect," it's unclear how the OCC would obtain e-mails from purportedly private list servs of "key CRA advocates"...

Perhaps most interesting, at least as a legal matter, is that the OCC only made its (required) request for a "report on the competitive factors involved in th[is] notice" to the Federal Reserve System on November 17, 2000, stating "If your office could respond by December 1, 2000, it would be greatly appreciated." In fact, under the law, the Fed had more than the specified 13 days to respond. Nevertheless, after four p.m. on November 30, the Fed faxed its "no significant anticompetitive effects" letter to the OCC. Just before five p.m. on November 30, the OCC (and FDIC and NYBD) approved the noticed, and, in a filing made at 5:30 p.m. with the Delaware Secretary of State, Citigroup "consummated" the transaction.

Similarly, while the Federal Reserve on November 17 "suspended" the 45 day review period on Citigroup's applications to acquire Associates' banks in Hong Kong and the United Kingdom, the Fed on November 30 suddenly "waived the remainder" of the notification period (letter from the Board's Associate Secretary to Citigroup's counsel, dated November 30, based on a November 30 memo from Joanna de Plas, large portions of which have been redacted).

Interestingly, the Department of Justice's letter to the OCC stating that "we... do not conclude that any would have a significantly adverse effect on competition" was only faxed to the OCC at 8:05 p.m. on November 30, 2000 -- AFTER Citigroup has consummated the deal. And the DOJ's letter states, as to Citigroup - Associates National Bank, that "we concur in authorizing the consummation of the... transactions 15 days after the date of approval."

In a parallel universe, in a Missouri court, Citigroup is arguing that ICP's petition for judicial review, filed December 1, is "moot." Citigroup, in a filing in the Missouri court, accuses ICP of "sleeping on its rights," of having "delay[ed] the filing of [its] appeal... probably intended to cause the maximum disruption of the merger." But Citigroup rushed to "consummate" the transaction, before even the date listed in the OCC's request for (required) comments from the Federal Reserve System -- and before the OCC had received the DOJ's (required) sign-off, which itself provided for a fifteen day waiting period before the deal could be consummated. Contrary to Citigroup's claim ("appellants' own conduct has allowed this set of events to come to pass"), it was the irregularities in the agencies' fast (and coordinated) approvals, and Citigroup's gun-jumping, that have created this situation. Developing...

To ICP, the most intriguing -- and outrageously redacted -- document provided by the Fed is a memo to the Board, dated December 20, 2000, from Fed staffers Alvarez, Threatt, B. Smith and Mann. The memo suggests that the Board rule (how, has been redacted) on ICP's request that Citigroup, now controlling a bank with a less than satisfactory CRA rating, be prohibited "from engaging in additional financial activities." This December 20 memo states that "[a]t the time Citigroup acquired Associates First, the Board determined that the GLB Act and the Board's rules apply the prohibitions to a FHC only if an insured depository institution has recently a less-than-satisfactory CRA rating while it is under the FHC's control. [FN: See the Memorandum to the Board from the Legal Division (Messrs. Alvarez and Fallon and Ms. Threatt), dated November 15, 2000]. The Board's interpretation recognized that a FHC is responsible for the CRA rating of an insured depository institution only if the FHC controlled the institution during the period in which the examination occurred." There follows a two page redaction, and two more pages, withheld in their entirety.

This is a scam: there is no record of the Board's "determination" (which is contrary to the language of the GLB Act) -- there's only a reference to the staff's own November 15, 2000 memorandum. The Fed has changed the law, without even leaving a record of its reasons. The "determination" is made later, to assist Citigroup. Page 3 of this December 20 memorandum is entirely redacted, except footnote 3: "See the Memorandum to the Board from Staff recommending approval of the final [GLB Act] rule, dated December 19, 2000." The last notation? "Deleted pages 4 and 5." We'll be appealing.

Update of January 29, 2001 -- In a letter dated January 23, 2001, the Federal Reserve Board "responds" to ICP's December 20, 2000, Freedom of Information Act request "for all records reflecting Board communications... related to Citigroup Inc and Associates First Capital Corporation or Associates National Bank." The Fed writes (a month after the request) that "we are extending the period for our response until February 6, 2001, in order to consult with another agency or with two or more components of the Board having a substantial interest in the determination of the request." But such extension are NOT supposed to be routine...

Update of January 22, 2001: The Wall Street Journal of Jan. 19 speculates that Citigroup's Sandy Weill, 67, intends to stay on, despite an earlier announcement that a successor would be chosen by early 2002. The Journal's Paul Beckett quotes "[s]ome inside and outside the company... speculat[ing] that in the next two years Mr. Weill may make a legacy-defining play for American Express" - a combination which would form the first U.S.-based financial firm with assets over $1 trillion. When is enough, enough?

Meanwhile, Citigroup claims to have "disengaged" from the U.K.-based animal testing firm Huntingdon Life Sciences Group (HLS). "Please note that all the HLS shares that were held in the name of Vidacos Nominees Limited ("Vidacos") on behalf of clients (not "own account") are no longer held in the name of Vidacos nor any other Citibank company and, therefore, any connection with HLS has ceased," Jennifer Scardino, Citigroup's director of corporate affairs in London, stated. From the speed of Citi's response on this, Citigroup seems to take this issue more seriously than the serious predatory lending issues, raised by over 100 community and consumers groups...

Readers may remember that, just after the FDIC, OCC and New York Banking Department approved Citigroup - Associates on November 30, and Citigroup immediately closed the deal, ICP made requests to the agencies, under the Freedom of Information Act, for all of their communications with each other, and with Citigroup. The timing of the approvals was clearly coordinated, and resulted in precluding meaningful judicial review (although the lawsuit about the Missouri Department of Insurance's approval, after denial of ICP's timely request to depose various Citigroup officials, continues).

Well, ICP has just received the FDIC's FOIA response. The FDIC states that it has identified 476 pages of responsive documents. The FDIC, however, has yet to release these documents. When they do, they will be reported on in this space.

For now, from the mailbag:

Subj: Outstanding articles
Date: 1/18/01 10:25:12 AM Eastern Standard Time
From: [ ]
To: CitiWatch [at] innercitypress.org

I found your site today and I was impressed by all the information you have on Citi and Associates.

I was a Top manager for an Associates Consumer Finance office for 5 years. Everything in your articles is true about the questionable integrity of their lending practices. After 5 years you can no longer look yourself in the mirror and still have a conscience... Thanks again for all you are doing for Mankind.

Update of January 16, 2001: Citigroup, which enjoys much greater access to, and prestige with, government agencies than Associates First Capital did, is now buying its way out, on the cheap, from some of the legal problems it acquired along with the Associates. On January 8, Citigroup settled, for a mere $1.5 million, the pending discrimination case against Associates National Bank. Later in the week, Citi settled a pending class action against The Associates in Georgia.

Update of January 6, 2001: Citigroup has become one of the president-elect's advisory on financial services issues. Citigroup gave $113,000 in contributions to the campaign, and is one of the beneficiaries of the House of Representatives' decision last week to dissolve the Banking Committee into a larger, "Financial Services" Committee, which will cover insurance as well as banking. Ah, Citigroup... From the public record:

Baton Rouge (La.) Advocate, Jan. 3, 2001: Citifinancial Inc. and Citifinancial Consumer Services Inc., et al vs. Cathy Garrett and Clifton E. Olsen Jr..

Spokane (Wa.) Spokesman-Review, December 29, 2000: CitiFinancial Inc. vs. Scott Couturier, money claimed owed.

Knoxville (Tn.) News-Sentinel, December 24, 2000: Citifinancial Inc. to Cathie Cheatham and Dennis Cheatham, in Greywood Crossing subdivision, $ 71,000.

St. Petersburg (Fl.) Times, December 21, 2000: Associates Financial Services Co. Inc. and Ford Consumer Finance Co. Inc. vs. Marjorie A. Baker, Majorie A. Baker, Unknown Spouse of Marjorie A. Baker a/k/a Majorie A. Baker, Global Funding Inc., Tenant 1, Tenant 2, Tenant 3 and Tenant 4 (real property)

Orlando (Fl.) Sentinel, December 21, 2000: Citifinancial Mortgage Co. vs. Ludmils Antonos, mortgage foreclosure.

Update of January 2, 2001: As recounted in last week's report, below, the Federal Reserve Board on Dec. 21 gave Citigroup another favor: twisting the Gramm-Leach-Bliley Act of 1999 so that Associates National Bank's Needs to Improve rating under the Community Reinvestment Act has no effect on Citigroup. Twisting the law is one thing, and secrecy (about twisting the law) is another. Last week, Inner City Press finally received a response from the Fed to its Freedom of Information Act request -- but it's simply a request (unilaterally) for more time: "the Board received your request... for records... reflecting and/or related to any communications between Board personnel and Citigroup... or Associates... related to Citigroup's proposal to acquire Associates First Capital... or any other Citigroup acquisition proposal since September 5, 2000.... we are extending the period for our response until January 5, 200[1], in order to consult with another agency or with two or more components of the Board having a substantial interest in the determination of the request." Yep, hold that information back as long as possible -- probably, until after the Fed publishes its Citigroup-gift GLB Act regulations in the Federal Register...

Now, some global Citigroup news: even in the week between Christmas and New Years, Citigroup was on the move. In India, Citi announced that it's opening two new "banking centers," one in the northern city of Ludhiana, the other in Coimbatore, in south India. These are just prefatory moves: Citi has also told the Reserve Bank of India that it is interested in acquiring a local bank. Current regulations bar outright acquisitions of Indian banks by foreign banks. Citi's thought? If it can violate, and then repeal, the Glass-Steagall Act in the United States, this India law shouldn't present many problems... In Prague on December 28, the newspaper Pravo reported that Citigroup is interested in buying Union Banka AS, the Czech Republic's No. 6 bank, and that Citi's representatives are set to inspect Union Banka's books in January... In news of possible interest to environmentalists (and anyone who has to breathe -- that is, anyone), Australian "natural resources" company BHP Ltd. has appointed Citi's Salomon Smith Barney to advise on its U.S. coal operations, including possible mine acquisitions. BHP's possible targets include U.S. steaming coal mines owned by the Peabody Group, the world's largest coal company, and the No.2 U.S coal company, Arch Coal Inc....

Bloomberg of Dec. 27 contained a lengthy send-up of Robert Rubin, reciting that in May 1999, Rubin urged Congress to repeal the Glass-Steagall Act (and make "legal" the Travelers-Citicorp merger); in mid-1999, Sandy Weill began wooing Rubin to Citigroup, offering a $45 million a year salary, which was finalized in October 1999, just as Congress repealed Glass-Steagall. Bravo! Fed chairman Greenspan apparently responded to Bloomberg's questions about Rubin, in writing; the article also quote Weill, Rubin's old colleagues at Goldman Sachs, and ex-president Jimmy Carter (recounting a fishing trip with Rubin and four others in Argentina in March 2000. Connecting back up to the weekly news items, above, the article reports that "in India [Rubin] met with Central Bank governor Bimal Jalan to discuss Citigroup's desire to buy shares in a state- owned bank and its desire for an easing of restrictions on the number of foreign-owned bank branches there." Well, Citi's gotten two new branches, and is getting closer to repealing the prohibition on bank ownership by foreign companies. Corporate globalization, anyone?

Update of December 26, 2000: In this holiday week, we'll step back from a blow-by-blow of Citigroup's expansionism, to consider a major favor Citi received from the Federal Reserve on December 21. First, however, we must note the micro-shake up in Citigroup's consumer lending hierarchy. Bob Willumstad has taken the place of Robert ("don't-call-me-Bob") Lipp, as head of consumer finance. Citigroup claims that Lipp wants to "focus on his philanthropic interests," which include the New York City Ballet and Williams College. More quietly, Associates First Capital's Ken Hughes has been named head of consumer (read, subprime) finance, in "emerging markets." More in this in reports to come. The New York Post of Dec. 18 detailed how Sandy Weill used Citi "human resources" chief Michael D'Ambrose to "purge" most executives who had been part of John Reed's inner circle -- then Weill fired D'Ambrose. The Post's source concluded: "What does this tell you about Mr. Weill? Who's ever going to trust him?" Good question. One answer, sadly, is... the Federal Reserve:

On December 21, the Fed issued a "final" rule, implementing the (deregulatory) Gramm-Leach-Bliley Act of 1999. Included in the GLB Act, as its one supposedly "pro-Community Reinvestment Act" provision, were two ways in which a less than satisfactory CRA rating could have ramifications on a holding company. Under the scenario relevant here, when a financial holding company (like Citigroup) comes to own a bank with a less than satisfactory CRA rating, it is supposed to lose its GLB powers under 12 U.S.C. Section 1843(k) and (n). As soon as Citigroup acquire Associates First Capital and its bank with a Need to Improve CRA rating, Associates National Bank, ICP wrote to the Fed, formally asking it to implement this provision of law, and prohibit Citigroup from exercising new powers. For three weeks, the Fed did not respond. Then, on December 22, ICP received a letter from the Fed, citing to the revised and final GLB rule, released December 21 in Washington. The Fed's Associate Secretary's letter recited that

"[b]y letter dated November 30, 2000,you petitioned the Board to prohibit Citigroup.. from engaging in additional financial activities after the acquisition by Citigroup of Associates First Capital Corporation... [S]ection 225.84 of Regulation Y sets forth the circumstances under which a FHC that controls an insured depository institution with an unsatisfactory CRA rating will be prohibited from expanding its financial activities under the GLB Act. As reflected in this section, the Board has interpreted the GLB Act to require the Board to prohibit a FHC from expanding its financial activities only when one of the FHC's insured depository institutions has received a poor CRA rating while the institution is under the FHC's control. This interpretation gives full meaning to the words of the GLB Act. It also facilitates an important public purpose of allowing FHCs that have insured subsidiary depository institutions with satisfactory ratings to acquire and enhance the CRA performance of insured depository institutions with unsatisfactory ratings.

Sincerely yours, Robert deV. Frierson, Associate Secretary of the Board"

The Fed's letter has to say that "the Board has interpreted the GLB Act...giv[ing] full meaning to the words of the GLB Act... facilitat[ing] an important public purpose" -- because the Fed's "interpretation" IS NOT WHAT THE GLB ACT SAYS. (Inner City Press' Federal Reserve Reporter this week goes into more detail on this, including quoting the statutory language). The Fed has CHANGED the law, in a way that benefit only one institution: Citigroup, the only FHC to have acquired a bank with a less than satisfactory rating. The Fed's January 2000 interim rule and preamble did not put forward this "interpretation" -- because Citigroup didn't need it then. But who's going to (effectively) protest, now? The Fed's Dec. 21 letter to ICP says that "third parties have no standing" to contest how the Fed enforces the law. How about the Democrats that claimed so much credit for the inclusion of this provision in the GLB Act? Or are they conflicted, since the company the Fed has invented this loophole for is.. Citigroup, major donor? We'll see...For now, ICP's raised this issue to the Federal Reserve Board's Inspector General. Results will be reported in this space. Happy New Year! For or with more information, contact us.

Update of December 18, 2000: Citigroup has swallowed Associates First Capital, and has ramped up its lobbying for the continued legality of (and lack of scrutiny on) its controversial practices. Most recently, Citigroup attempted to lobby the Federal Reserve Board against including single premium credit life insurance in the definition of "points and fees" that brings a loan under the 1994 Home Ownership and Equity Protection Act (HOEPA). The Fed nevertheless included this provision in its regulatory proposal announced on December 13. But the Fed has yet to respond to ICP's request that it "notify" Citigroup that, due to Associates National Bank's Needs to Improve CRA rating, it is precluded from certain future activities and acquisitions, under the Gramm-Leach-Bliley Act of 1999.

Update of December 11, 2000: As previously reported, ICP has submitted Freedom of Information requests to the OCC, FDIC and NYBD, for each agency's communications with Citigroup in the days before the Nov. 30 approvals and instant closing of the deal. Each agency has now acknowledged receipt of the FOI request; the responses will be reported in this space upon receipt. The OCC's notice to commenters of the Nov. 30 approval -- was mailed out on December 5. Entirely precluding judicial review. ICP's lawsuit against the Missouri Department of Insurance's Citi - Associates approval has been docketed in the circuit court for Cole County, Missouri, and assigned docket number 00-CV-325638. Citigroup's attorneys appear to believe that since Citigroup immediately closed the deal (that is, signed the papers) on Nov. 30, the fight is over. Nothing could be further from the truth...See, e.g., Dow Jones Newswire of December 4, 2000. On December 8, ICP took part in mock caroling in front of the Citigroup headquarters on 53rd Street and Lexington Avenue in Manhattan. To the tune of Silent Night, the carolers sang: "Slee-ee-zy loans, Cut to the bone," and so forth. Much fun was had; and, it is said, Citigroup's "chief administrative officer" has begun receiving phone calls from unlikely sources, asking about Citigroup's supposed attention to "reputational risk." "Sleeeazy loans," indeed...

Update of December 4, 2000: In the aftermath of the regulators' November 30 approvals, and Citigroup's November 30 closing of the Citigroup - Associates merger, several concerns have arisen. Many have questioned the timing: on November 29, the General Accounting Office released a report finding the Citibank has been engaged in money laundering, in the cases reviewed by the GAO, as recently as April 2000. The case was referred, on November 29, to the U.S. Department of Justice. Nevertheless, the OCC, FDIC and NYBD approved Citigroup's applications the next day. Also, it seems clear that these agencies gave Citigroup a "heads-up" of when to expect approval, so that Citigroup could close the deal immediately thereafter (there thereby avoid any meaningful judicial review of the OCC's, FDIC's and NYBD's approvals). ICP has just submitted Freedom of Information requests to each agency, for all of their communications with Citigroup during the time frame. The responses and results... will be reported on this Web site.

The OCC's actual approval order, "Corporate Decision #2000-21," goes out of its way to state that the "OCC's role... pertains only to Associates N[ational] B[ank], not [Associates First Capital]." So, after a year of speeches about predatory lending, when faced with an application by the largest bank holding company to acquire the most scandal-plagued subprime lender, the OCC claims that it can't get to the issues that are raised. Of course, the OCC could have: Citigroup's decision to acquire Associates First Capital, given its record, raised (and raises) issues about Citigroup's "competence, experience and integrity," one of the explicit factors under the Change in Bank Control Act. The same applies to the FDIC.

The NYBD's press release announcing its approval at least doesn't have the defensive (and hence, pro-Citigroup) tone of the OCC and FDIC decisions. The NYBD's Director of Consumer Services and Financial Products is quoted: "We are confident the agreement reached will provide increased consumer protections for sub prime borrowers and will help to raise lending standards in the sub prime residential lending market. The Department looks forward to working with Citigroup to resolve any outstanding issues raised and to ensure the proposed pilot programs are swiftly implemented in New York State." The release also states: "Citigroup will work with the Banking Department to resolve issues arising from a 1998 agreement." This, of course, is a reference to the "micro-mortgage" scandal that arose during the proceeding. Citicorp's regulatory counsel, Carl Howard, in a July 22, 1998 letter to the NYBD, had committed that for all of Citicorp's mortgage lenders,

"the percentage of their HMDA-reportable lending in 1998, 1999 and 2000 in the majority minority census tracts in the cities of Buffalo and Rochester, the counties of Erie and Niagara combined and the county of Monroe, respectively, will equal or exceed the percentage of such lending by them in these areas for the first six months of 1998," and that "the percentage of their HMDA-reportable lending in 1998, 1999 and 2000 in the majority minority census tracts in the following areas: 1. Nassau and Suffolk counties combined, 2. Westchester and Rockland counties combined, 3. Queens County, 4. Kings County, 5. Bronx County, 6. New York County and 7. Richmond County, will equal or exceed the adjusted Aggregates' percentage of such lending."

The way Citigroup then tried to comply with this commitment was by making very small "micro-" home improvement loans, mostly below $1,000, and counting each as if it were a real / regular mortgage in a majority minority census tract. By dollar volume of lending, Citigroup still dramatically trails the aggregate. While the NYBD may have erred in not requiring a dollar volume commitment from Citigroup, Citigroup's actions amount to misleading its regulators. An emerging argument: the micro-mortgages made by Citigroup, based on direct mail, may not have been "HMDA-reportable" at all... Developing..

The case seeking judicial review of the Missouri Department of Insurance's approval of Citigroup's application to acquire an Associates insurer, North Field Insurance Company, was received by the circuit court for Cole County, Missouri, on December 1, 2000. These proceedings, too, will be reported in this space. The need for oversight (from below) of Citigroup is greater than ever before.

Update of Friday, December 1, 2000: Late Thursday afternoon, the OCC, FDIC and NYBD all approved Citigroup's applications to acquire Associates First Capital. The NYBD imposed some additional conditions, applicable only in New York State; the OCC and FDIC imposed no conditions at all. The approvals came just as legal papers seeking review of the Missouri Department of Insurance's approval of Citi-Associates were being finalized and filed, by overnight mail (updates to follow). After 5 p.m., Citigroup announced it had closed (or "consummated") the deal. See, e.g., "Citigroup - Associates Gets Regulatory OK's," by Marcy Gordon, Associated Press, November 30, 2000.

This will all be analyzed in more detail in our Update of Monday, December 4. It seems clear that (at least some of) the agencies gave Citigroup a "heads-up" as to when to expect approval, so that Citigroup could move to close the deal without any judicial review. For now, here is a letter ICP has just faxed to the Federal Reserve Board, demanding action on Associates National Bank's "Needs to Improve" rating under the Community Reinvestment Act (which should now prohibit Citigroup from exercising or acquiring powers under the Gramm-Leach-Bliley Act of 1999), and asking the Fed to act on the mounting compliance problems at Citigroup. More on December 4....

Nov. 1 - Dec. 30, 2000

Dear Chairman Greenspan and others at the Federal Reserve:

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 is a formal request for Federal Reserve Board ("FRB") action, under 12 Code of Federal Regulation 225.84(a). Citigroup, Inc. has just reportedly consummated its acquisition of Associates First Capital Corporation and Associates National Bank, an institution which has a "Needs to Improve" rating under the Community Reinvestment Act. Under 12 U.S.C. Sec. 1843(l)(2), Citigroup is now (see infra) prohibited from "[c]ommenc[ing] any additional activity under subsection 4(k) or 4(n) of the Bank Holding Company Act... or [d]irectly or indirectly acquir[ing] control of a company engaged in any activity under subsection 4(k) or 4(n) of the Bank Holding Company Act." 12 CFR 225.84(a)(1)(i) and (ii).

ICP is submitting this formal request in light of the provision of 12 CFR 225.84(a)(2) which states:

(2) Notification. A financial holding company received notice for purposes of this paragraph at the time that the appropriate Federal banking agency for any insured depository institution controlled by the company or the Board provides notice to the institution or company that the institution has received a rating of "need to improve record of meeting community credit needs" or "substantial noncompliance in meeting community credit needs" in the institution's most recent examination under the Community Reinvestment Act.

Emphasis added.

The Board is hereby formally made aware (as it was in ICP's September 25 and October 16, 2000, submission to the Board) that Associates National Bank, which Citigroup has reportedly just acquired, has a Needs to Improve CRA rating. ICP is asking the Board to forthwith "provide[] notice to the institution or company that the institution has received a rating of 'need to improve record of meeting community credit needs,'" under 12 CFR 225.84(a)(2).

Citigroup has announced a number of proposed acquisitions recently; ICP asks for a review of whether they include companies engaging in "any activity under subsection 4(k) or 4(n) of the [BHC] Act." ICP also asks for confirmation that the Board has provided the notification now required under 12 CFR 225.84(a)(2).

As you are undoubtedly aware, the General Accounting Office ("GAO") report issued on November 29, 2000 (GAO-01-120; "Possible Money Laundering Through U.S. Banks") finds that Citibank, until April of this year, handled at least $270 million for "Russian companies" as to which Citibank "did not conduct due diligence...". Id. at 9, also citing GAO/OSI-99-1, "Private Banking: Raul Salinas, Citibank and Alleged Money Laundering"). The Board should act on these recent revelations, as well as the following portion of Mother Jones magazine's December 2000 article, "Tax Cheater's Paradise:"

"Citibank's clients have included the family of Sani Abacha, the former Nigerian general who plundered billions of dollars from his nation's treasury, and dictator Omar Bongo of Gabon, for whom Citibank established a Bahamian shell corporation to stash his looted treasure. Citibank also helped Raul Salinas, brother of former Mexican president Carlos Salinas, by transferring tens of millions of dollars out of Mexico and depositing the money in European banks under the names of untraceable companies registered in the Cayman Islands. Citibank never used Salinas' name in bank communications, referring to him instead as 'Confidential Client 2,' or 'CC-2.'

'CC-1' was the code used to refer to Carlos Hank Rhon, who is currently facing civil charges by the Federal Reserve that he used secret offshore accounts to illegally hide his controlling interest in Laredo National Bank, the third-largest independent bank in Texas. A Mother Jones review of Fed documents reveals that Citibank handled more than $100 million for Hank Rhon, funneling his money through accounts in New York, Mexico, London, Zurich, the Bahamas, and the British Virgin Islands. According to one filing in the case, Citibank not only decided what offshore entities to establish, but designated its own employees as officers, directors, and trustees."

ICP also hereby makes the Board aware of an issue, relevant to the managerial resources of Citigroup, that has arisen: Citigroup's illusory improvements in its lending in communities of color, low- and moderate-income ("LMI") neighborhoods, and to African Americans and Latinos have mispresented Citigroup's record, in The Bronx and other communities in New York State regarding which Citicorp made a formal commitment, to the New York Banking Department (the "NYBD"), in 1998.

When Citicorp and Travelers proposed to merge in 1998, ICP documented Citicorp's disproportionate exclusion of communities of color, including in The Bronx. While the FRB approved Travelers' applications, without conditions on these issues, the NYBD required a commitment from Citigroup, to increase its lending in majority-minority census tracts in New York State.

Citigroup claims to have increased its lending dramatically in majority-minority census tracts, and to have complied with the 1998 commitment. However, a close review of Citigroup's 1999 Home Mortgage Disclosure Act ("HMDA") data shows that the vast majority of these purported improvements consist of loans, under $1,000, reported as home improvement loans.

Citibank, N.A., Citigroup's bank in New York City, reported making 1,931 HMDA-reportable loans in The Bronx in 1999. But fully 1,751 (or over 90%) of these were home improvement loans. These 1,751 home improvement loans in The Bronx were generated off 1,805 applications, for a total dollar volume of $4,064,000 -- an average of $2,252 per loan application, much lower than other lenders' average home improvement loan in The Bronx.

It appears clear that Citigroup initiated this "micro-home improvement loan" program in order to create the misleading impression that it was complying with its 1998 commitment. This becomes apparent, for example, when one considers the racial demographics of Citigroup's marketing (mail solicitations) for these loans. Of race-specific applications for home improvement loans in The Bronx, based on Citibank's marketing, it reported in 1999 410 applications from African Americans, 590 applications from Latinos, and only 66 applications from whites. This is entirely inconsistent with the demographics of The Bronx, and with the marketing and lending patterns in the Bronx of other lenders, including home improvement lenders. This pattern would not have resulted from obtaining credit history information for all of The Bronx's residents and homeowners; this is clearly a program of "micro-loans" directed as majority-minority census tracts, in order to purportedly comply with Citigroup's 1999 commitment, in terms of number of loans, but not dollar volume. The $4 million that Citibank lent in The Bronx under this program in 1998, claiming thereon over 1,000 loans, is dwarfed by Citigroup's (and Citibank's) "real" mortgage lending, in Manhattan below 96th Street, for example (Citigroup's home purchase and refinance lending was analyzed in ICP's September 25, 2000, submission to the FRB, incorporated herein by reference). Even in The Bronx, note that Citicorp Mortgage, with normal-size loans, made, in 1999, 44 loans to whites, and only six to Latinos, and only five to African Americans. Again, it appears clear that Citigroup initiated this "micro-home improvement loan" program in order to create the misleading impression that it was complying with its 1998 commitment -- raising issues about Citigroup that ICP is hereby asking the FRB to inquire into and act on, under the managerial resources standards of the BHC Act and otherwise.

On predatory lending issues, ICP hereby formally raises to the Board the Wall Street Journal's November 22, 2000 report that Citigroup's CEO's son (which directed Citigroup's investment in, and acquisition of, the questionable subprime lender IMC Mortgage) was, during the relevant time frame, on or addicted to cocaine, apparently crack cocaine. See, "Citigroup's Marc Weill Left Firm to Battle Drug Habit," by Charles Gasparino and Joann S. Lublin, Wall St. J., Nov. 22, 2000.

This is particularly relevant in light of the FRB's November 21, 2000, letter to counsel for Chase Manhattan Corporation, including into safeguards in place for investment in, and other business with, subprime lenders. ICP is certainly not without sympathy for what has become known as "substance abuse." However, where apparent nepotism and lack of managerial oversight allow the substance abuser to place the nation's largest financial institution deeper and deeper into predatory lending (for example, through the investment in, and 1999 purchase of, IMC Mortgage), the issue moves beyond the realm of personal sympathy.

Also on subprime lending issues, CitiFinancial (a Citigroup BHC subsidiary under the primary jurisdiction of the Board) on November 7, 2000 announced certain purported reforms of the practices of CitiFinancial. ICP finds these less than meaningful, often misleading, and full of loopholes. In summary, Citigroup currently charges up to nine percent -- nine hundred basis points -- in fees on brokered loans, much higher even than other subprime lenders. Citigroup's "reform"? To reduce it to eight percent.

No explanation is given why "referral up" couldn't be done through CitiFinancial's "Maestro" computer system; the fees remains as high, single premium credit life insurance will continue to be offered. CitiFinancial supplemented these "commitments," in a separate commitment to the NYBD. The FRB, CitiFinancial's primarily regulator, should obtain copies of these commitments, and ensure CitiFinancial's compliance therewith, particularly in light of the weak compliance culture evidence supra...

As to the proposed acquisitions that Citigroup has recently announced, and all Citigroup acquisitions until Associates National Bank receives a Satisfactory or better CRA rating, ICP is hereby formally asking for a review of whether these include companies engaging in "any activity under subsection 4(k) or 4(n) of the [BHC] Act." ICP also asks for confirmation that the Board has provided the notification now required under 12 CFR 225.84(a)(2).

If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,

Matthew Lee
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move

Update of November 27, 2000: Beyond the "micro-mortgage" scandal summarized below in the report of November 22, yet another adverse issue has arisen. The Wall Street Journal of November 22 contained a long article, quoting multiple sources that Marc Weill, whose investment in the controversial subprime lending IMC Mortgage resulted in Citigroup taking ownership of the company -- was on drugs during the relevant time frame. See, "Citigroup's Marc Weill Left Firm to Battle Drug Habit," by Charles Gasparino and Joann S. Lublin, Wall St. J., Nov. 22, 2000.

ICP is certainly not without sympathy for what's become known as "substance abuse," particularly in this holiday season. However, where nepotism and lack of managerial oversight allow the substance abuser to place the nation's largest financial institution deeper and deeper into predatory lending, the issue moves beyond the realm of personal sympathy. The Daily Deal of November 27 quotes a "government official" (at the OCC or FDIC) that a denial of Citigroup's notice might "spur an unjustified run on Citigroup's banks." Now that's what we call spin-control. The American Banker of November 27, 2000, quotes an official of the Office of the Comptroller of the Currency that "the agency is looking only 'at issues involving management, experience, and competence, rather than CRA-type considerations.' The FDIC refused to comment on the deal." "Law Denies CRA Clout to Citi-Associates Foes; Federal Regulators Cannot Consider the Issues," by Rob Blackwell, American Banker, November 27, 2000, Pg. 1, which also quotes ICP's executive director: "What if a bank tries to buy the Medellin drug cartel to sell mutual funds, or to expand its private banking business? The argument that a bank could buy anything because it is just their own integrity and not that of the acquiree that matters -- that's ludicrous." The reference to a drug cartel might have seemed hype -- until the Wall Street Journal's November 22, 2000, above-cited article. ICP has just filed the comment below:

November 24, 2000

Dear Regional Director Stum, Comptroller Hawke, Superintendent McCaul:

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 comment, specifically on the integrity, competence and other required statutory factors, opposing and requesting hearings on the notices of Citigroup, Inc. (along with its subsidiaries, including the subprime lenders Citifinancial and IMC Mortgage) to acquire control of Associates First Capital Corporation and its subsidiaries ("Associates").

ICP will not here reiterate its grounds for opposing Citigroup's notices to acquire the problematic subprime lender Associates -- ICP's previous comments are incorporated herein by reference. The purpose of this submission is to put into the record, in as timely a fashion as possible, a recent revelation that goes directly to the integrity, competence and other required statutory factors, particularly in connection with Citigroup's recent acquisition of other problematic subprime lenders.

As you know, ICP and others have commented on the record of IMC Mortgage, a subprime lender that Citigroup invested in, and then acquired, and, ICP contends, has not meaningfully improved. It is public record that the individual behind Citigroup's investment in, and subsequent acquisition of, IMC was Citigroup's CEO's son, Marc Weill.

The Wall Street Journal of November 22, 2000 contains a length article quoting multiple sources that, during the relevant time frame, Marc Weill was "on drugs," specifically cocaine, apparently crack cocaine. See, "Citigroup's Marc Weill Left Firm to Battle Drug Habit," by Charles Gasparino and Joann S. Lublin, Wall St. J., Nov. 22, 2000 (the entirety is incorporated herein by reference).

ICP is certainly not without sympathy for what's become known as "substance abuse." However, where apparent nepotism and lack of managerial oversight allow the substance abuser to place the nation's largest financial institution deeper and deeper into predatory lending (for example, through the investment in, and 1999 purchase of, IMC Mortgage), the issue moves beyond the realm of personal sympathy.

ICP is also hereby entering into the record, as a supplement to the material near the end of ICP's September 25 comment directly relevant to the integrity and other required statutory factors, the following, from Mother Jones magazine's December 2000 article, "Tax Cheater's Paradise:" (see above on this page)

The American Banker of November 27, 2000 (an issue "put to bed" on November 22, due to the four-day Thanksgiving holiday) quotes an official of the Office of the Comptroller of the Currency that "the agency is looking only 'at issues involving management, experience, and competence, rather than CRA-type considerations.' The FDIC refused to comment on the deal." "Law Denies CRA Clout to Citi-Associates Foes; Federal Regulators Cannot Consider the Issues," by Rob Blackwell, American Banker, November 27, 2000, Pg. 1.

The matters put into the record by this letter should make it clear that it is not just Associates First Capital Corp.'s, but also Citigroup's, integrity, competence, etc. that is being called into question. This matter, as well as the unaddressed Citigroup "micro-mortgage" scandal and unexplained incorrect answer(s) under oath at the Missouri Department of Insurance's October 18 hearing (see, e.g., ICP's November 22 submission), must be addressed, under the statutory factors, in this proceeding.

The above-quoted American Banker article of November 27, 2000, reports community groups' concerns that, due to provisions of the Gramm-Leach-Bliley Act of 1999, there is no Federal Reserve application, subject to public comment and possible public meeting, in connection with Citigroup's over-all proposal to acquire Associates First Capital Corp. and its subsidiaries. For the record, and to cast light on the type of questions the OCC, FDIC and NYBD should be asking in their proceedings, annexed hereto is a recent Federal Reserve Board additional information request to applicants before it [Chase - Morgan], under the "managerial resources" standard of the Bank Holding Company Act, which is a standard quite similar to the standards the NYBD, and FDIC and OCC must use (under the Change in Bank Control Act, including its broad "integrity" factor). The FRB inquires into not only subprime lending issues (Questions 1, 3 and 4), but also the applicants' reported involvement in the Holocaust (Question 5), slavery in the United States (Question 6), a copper trading scandal (Question 8), etc.. Clearly, the matters raised above (and in ICP's previous comments) need to be inquired into by the agencies, in this proceeding.

On subprime lending issues, Citigroup on November 7 announced certain purported reforms of the practices of CitiFinancial. As previously noted, we find these less than meaningful, often misleading, and full of loopholes. In summary, Citigroup currently charges up to nine percent -- nine hundred basis points -- in fees on brokered loans, much higher even than other subprime lenders. Citigroup's "reform"? To reduce it to eight percent.

Citigroup has submitted a less than useful, rushed response to the question letter that the OCC issued in connection with the extension of its review period. No explanation is given why "referral up" couldn't be done through CitiFinancial's "Maestro" computer system; the fees remains as high, single premium credit life insurance will continue to be offered. Citigroup's commitments -- which it goes out of its way to say are not part of its applications -- are illusory, and only further militate, along with the above, for the federal hearings that the FDIC and OCC should now schedule and hold, even more so in light of the troubling issues raised supra. On the current record, the FDIC, OCC and NYBD should (and, ICP contends, must) deny Citigroup's notices.

If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,

Matthew Lee
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
Tel: 718-716-3540
Fax: 718-716-3161

If this -- the son of the CEO given vast investment powers, while on drugs, and buying a predatory lender -- does not fall under the "competence, experience, or integrity" factor that the OCC and FDIC (and NYBD) are required to consider, what does? The NYBD has now asked Credit Suisse/DLJ and Chase - Morgan questions about what safeguards they have in place, before doing business with subprime lenders. The questions have not yet to posed to Citigroup -- sadly, the company's substance abuse policy may also have to be raised, including in connection with investments in subprime lenders.

Update of November 22, 2000: Yet another adverse issue has arisen, on Citigroup's applications to acquire Associates First Capital. Many groups have criticized Citigroup's disproportionate exclusion of African Americans and Latinos from its normal interest rate home purchase and refinance loans (ICP's comments are at the bottom of this page). Citigroup responded, on November 7, that its "lending" to African Americans and Latinos increased substantially in 1999. Now it turns out that the majority of the increase is attributable either to Source One (which Citigroup bought in May 1999) -- or to a flurry of small (one and two thousand dollar) "home improvement" loans that Citigroup's banks made in 1999. The Wall Street Journal of November 21 reported that the agencies, particularly the New York Banking Department (to which Citigroup in 1998 committed to improve its lending to people of color) and the FDIC, have become concerned.

It took ICP a few days to finalize it, but below is a letter ICP has submitted to the NYBD, FDIC and OCC, looking at Citigroup's 1999 "micro-mortgages," in The Bronx, and other communities. (The N.C. Fair Housing Center had kindly posted a list of where Citi's made its micro-mortgages). ICP's comment also highlights the inconsistency between CitiFinancial's general counsel's October 18 testimony, on ICP's cross-examination, at the Missouri Department of Insurance hearing, and documents just released by the Federal Reserve, reflecting October 2 and 13, 2000 meetings between Citigroup and the Fed. Developing...

November 22, 2000

Dear FDIC Regional Director Stum, Comptroller Hawke, and Superintendent McCaul:

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 comment opposing and requesting hearings on the notices of Citigroup, Inc. (along with its subsidiaries, including the subprime lender Citifinancial, "Citi") to acquire control of Associates First Capital Corporation and its subsidiaries ("Associates").

ICP will not here reiterate its grounds for opposing Citigroup's notices to acquire the problematic subprime lender Associates -- ICP's previous comments are incorporated herein by reference. The purpose of this submission is to highlight that Citigroup's illusory improvements in its lending in communities of color, low- and moderate-income ("LMI") neighborhoods, and to African Americans and Latinos have mispresented Citigroup's record, in The Bronx and other communities in New York State.

When Citicorp and Travelers proposed to merge in 1998, ICP documented Citicorp's disproportionate exclusion of communities of color, including in The Bronx. The New York Banking Department (the "NYBD") required a commitment from Citigroup, to increase its lending in majority-minority census tracts in New York State.

Citigroup claims to have increased its lending dramatically in majority-minority census tracts, and to have complied with the 1998 commitment. However, a close review of Citigroup's 1999 Home Mortgage Disclosure Act ("HMDA") data shows that the vast majority of these purported improvements consist of loans, under $1,000, reported as home improvement loans.

But fully 1,751 (or over 90%) of these were home improvement loans. See Exhibit B, annexed hereto.

These 1,751 home improvement loans in The Bronx were generated off 1,805 applications, for a total dollar volume of $4,064,000 (see Exhibit C) -- an average of $2,252 per loan application, much lower than other lenders' average home improvement loan in The Bronx.

It appears clear that Citigroup initiated this "micro-home improvement loan" program in order to create the misleading impression that it was complying with its 1998 commitment. This becomes apparent, for example, when one considers the racial demographics of Citigroup's marketing (mail solicitations) for these loans. Of race-specific applications for home improvement loans in The Bronx, based on Citibank's marketing, it reported in 1999 410 applications from African Americans, 590 applications from Latinos, and only 66 applications from whites. See Exhibit D, annexed hereto. This is entirely inconsistent with the demographics of The Bronx, and with the marketing and lending patterns in the Bronx of other lenders, including home improvement lenders. This pattern would not have resulted from obtaining credit history information for all of The Bronx's residents and homeowners; this is clearly a program of "micro-loans" directed as majority-minority census tracts, in order to purportedly comply with Citigroup's 1999 commitment, in terms of number of loans, but not dollar volume. The $4 million that Citibank lent in The Bronx under this program in 1998, claiming thereon over 1,000 loans, is dwarfed by Citigroup's (and Citibank's) "real" mortgage lending, in Manhattan below 96th Street, for example (Citigroup's home purchase and refinance lending was analyzed in ICP's September 25, 2000, comments, incorporated herein by reference). Even in The Bronx, note that Citicorp Mortgage, with normal-size loans, made, in 1999, 44 loans to whites, and only six to Latinos, and only five to African Americans. See Exhibit E, annexed hereto.

ICP, as a community organization headquartered in The Bronx, which timely commented opposing Citicorp-Travelers in 1998, and Citigroup - Associates in 2000, hereby contends that Citigroup's disingenuous evasion of its 1998 commitment (see supra) injures ICP, other Bronx residents, and other NYS residents (analyses of Buffalo and Rochester are annexed hereto, following Exhibit E), and raises serious questions under the "integrity," managerial resources and other statutory standards that the FDIC, OCC and NYBD must rule on in connection with Citigroup's notices. ICP calls on the FDIC and OCC to forthwith schedule public meetings on Citigroup's notices, and calls on the FDIC, OCC and NYBD to deny Citigroup's notices.

ICP also wishes to update the record on another adverse issue it has raised, most recently in its November 15, 2000 comments. Therein, ICP quoted from the transcript of the October 18, 2000, hearing of the Missouri Department of Insurance ("MDI"), at page 70, specifically:

MR. LEE: One follow-up question, Mr. Wong. To your knowledge, has Citigroup sought a ruling by the Federal Reserve Board on this issue?

MR. WONG: I do not know. I do not have an answer to the question. I do not know the answer to that question.

ICP's comment contrasts CitiFinancial general counsel Martin Wong's response to a Federal Reserve Bank of New York e-mail ICP had received under the Freedom of Information Act ("FOIA"), reflecting a September 5, 2000, telephone meeting between Citigroup regulatory attorney Carl Howard and the Federal Reserve, and stated that the inconsistency (to say the least) raised issues under the integrity, managerial resources and other statutory factors that the FDIC, OCC and NYBD must consider. On November 17, ICP received another FOIA response from the FRB, this time including an e-mail reflecting two further meetings between Citigroup and the FRB, on October 2 and October 13, 2000. See final exhibits annexed hereto. In an October 2, 2000, e-mail, FRB staffer Adrienne Hurt writes to FRB attorney Scott Alvarez and others, "I have been asked to confirm the next meeting with Citigroup." After that, two full lines are redacted. It is clear that a meeting took place, on or about October 2, 2000. Further on in the same e-mail, Ms. Hurt states that "Carl [Howard, of Citigroup] said he plans to discuss how they plan to operate Associates [REDACTION]."

CitiFinancial's general counsel was in Washington, D.C. on October 2, 2000, along with a group of other Citigroup representatives. It strains credulity that Mr. Wong would have been unaware of the October 2 meeting between Citigroup attorneys and the FRB. Mr. Wong is involved, inter alia, in the compliance programs of CitiFinancial, into which Citigroup proposes to merge the already-problematic practices of The Associates. This makes out a significant, legally cognizable adverse issues under the integrity, managerial resources and other statutory factors that the FDIC, OCC and NYBD must rule on, in connection with Citigroup's notices. ICP calls on the FDIC and OCC to forthwith schedule public meetings on Citigroup's notices, and calls on the FDIC, OCC and NYBD to deny Citigroup's notices.

Again, Citigroup on November 7 announced certain purported reforms of the practices of CitiFinancial. We find these less than meaningful, often misleading, and full of loopholes. In summary, Citigroup currently charges up to nine percent -- nine hundred basis points -- in fees on brokered loans, much higher even than other subprime lenders. Citigroup's "reform"? To reduce it to eight percent.

Citigroup intends to continue selling single premium credit life insurance, where this cost is rolled into the loan, and never recouped by the borrower. Citigroup intends to continue imposing pre-payment penalties, so that people it traps into high cost loans cannot get out from under them, by refinancing with another lender. Citigroup intends to continue imposing mandatory arbitration clauses on loans, so that those wronged can't even sue, as a class, or seek punitive damages. Citigroup's November 7 commitment is illusory, and only further militates for the federal hearings that the FDIC and OCC should now schedule and hold, even more so in light of the troubling issues raised supra. On the current record, the FDIC, OCC and NYBD should (and, ICP contends, must) deny Citigroup's notices.

If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Respectfully submitted,

Matthew Lee
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
Tel: 718-716-3540
Fax: 718-716-3161

And here's ICP's Freedom of Information Act appeal to the Fed, about its communications with Citigroup:

November 21, 2000

Dear Governor Gramlich or Governor deciding FOIA Appeals:

On behalf of Inner City Press/Community on the Move and its members and affiliates, including the Inner City Community Reinvestment and Federal Reserve Reporters (collectively hereinbelow, "ICP"), this letter is a timely appeal of the Secretary’s November 6, 2000, adverse determinations on ICP’s October 5, 2000, request under the Freedom of Information Act ("FOIA;" 5 U.S.C. � 552).

On October 5, 2000, ICP requested all "records reflecting and/or related to any communications between (1) FRS personnel and (2) Citigroup, Inc. or its affiliates, and/or Associates First Capital or its affiliates, related to Citigroup's proposal... to acquire Associates First Capital and its three insured depository institutions." (This is the summary provided in the Secretary's November 6, 2000, letter).

The Secretary’s November 6, 2000, letter (the "Denial"), stated that responsive documents had been identified, but that certain portions were being redacted under FOIA exemptions 4 and 5, and that "[a]pproximately 81 pages of documents will be withheld from you in their entirety."

ICP received the Denial by regular mail, and immediately telephoned the FRB's FOIA unit, inquiring into when it would receive the documents that were being released. ICP was told that they had been, or were being, sent to it be regular mail. ICP received this documents on November 17, 2000; this appeal is timely.

First, ICP is appealing redactions made to a copy of an e-mail, dated October 4, 2000, from the New York Reserve Bank. Two entire paragraphs are redacted, with a notation in the margin, "Not responsive." This is improper, under FOIA. If a document (here, a piece of paper) is responsive to the request, it can only be redacted based on one of FOIA's enumerated exemptions. An unredacted copy of this responsive document should be provided forthwith to ICP.

ICP is also appealing the other redactions. Inter alia because Associates First Capital is engaged in controversial subprime lending, and owns a bank which has a less than satisfactory Community Reinvestment Act ("CRA") rating, the FRB's discussions with Citigroup about Associates' lending, and the effect of the less than satisfactory CRA rating, under the Gramm-Leach-Bliley Act, are matters of public import, and, in the second case, would not appear to involve the type of "deliberation" that is required to qualify for exemption 5. The effect of the CRA rating is not subject to "deliberation" -- the law is clear. See 12 U.S.C. 1843(l)(2), and 12 CFR 225.84(a).

Adrienne Hurt's October 2, 2000, e-mail to Scott Alvarez and others (subsequently forwarded by Beverly Smith to Pamela Wilson) begins: "I have been asked to confirm the next meeting with Citigroup." After that, two full lines are redacted. It is clear that a meeting took place, on or about October 2, 2000 -- a date named in ICP's October 5, 2000, FOIA request (as to meeting notes, see infra). Further on in the same e-mail, Ms. Hurt states that "Carl [Howard, of Citigroup] said he plans to discuss how they plan to operate Associates [REDACTION]." ICP is contesting both of these redactions, and the "b5" redactions to the FRBNY e-mail of October 4, 2000, two other redactions from which are contested, supra.

It is entirely unclear to ICP what type of information may be included in the approximately 81 pages that are being withheld in their entirety; ICP appeals that withholding as well....

For your information and action (and relevant to this appeal -- the released documents refer to an October 13, 2000, meeting between FRB staff and Citigroup counsel Carl Howard), ICP has asked Citigroup representatives for their position on the legal effect of Associates National Bank's less than satisfactory CRA rating, and whether they have discussed this matter with Federal Reserve personnel. Here is the pertinent portion of the transcript of a formal hearing held October 18, 2000 by the Missouri Department of Insurance ("MDI"), on Citigroup's application to acquire Associates' Northfield Insurance Company. ICP was granted party status (over Citigroup's objections), and had a right to cross-examine (in the portion below, CitiFinancial general counsel Martin Wong):

..MR. LEE: One follow-up question, Mr. Wong. To your knowledge, has Citigroup sought a ruling by the Federal Reserve Board on this issue?

MR. WONG: I do not know. I do not have an answer to the question. I do not know the answer to that question...

In the above-quoted portion of the MDI hearing transcript (which the Board should obtain, from MDI), Mr. Wong claimed that he (and by implication Citigroup) have no knowledge regarding whether the acquisition of a bank with a Needs to Improve CRA rating, as here proposed, would result in a loss of powers -- powers that Citigroup's competitors would not lose.

This raises serious questions about the content of the October [2 and] 13, 2000 (and September 5, 2000) discussions between Citigroup's regulatory counsel Carl Howard, and FRS staff. More troubling is CitiFinancial general counsel Martin Wong's statement that he was and is not aware of Citigroup communications with the FRS on this matter -- in light of the October 2, 2000 (and September 7, 2000) e-mails. The FRB, Citigroup's (and CitiFinancial's) primary supervisor, should act on this.

As previously requested, the FRB should publicly instruct Citigroup on the legal effect of acquiring Associate First Capital and Associates National Bank, with its less than satisfactory CRA rating.

Any and all erroneously withheld information, and the other information and responses specified above, should be sent to [the undersigned].

Very Truly Yours,

Matthew Lee
Executive Director and Editor

Update of November 20, 2000: On November 16, the Office of the Comptroller of the Currency and the FDIC both announced they are extending their review period for Citigroup's notices to acquire Associates First Capital Corp.'s banks, for thirty days. The OCC asked Citigroup four questions, including "[p]lease clarify how Citigroup, through its marketing, its bank and thrift branches, its other office locations, and other procedures, offers prime as well as subprime products to low- and moderate-income and minority communities." The reference, clearly, is to Citigroup's November 7 proposal to finally begin a "referral up" process -- though only on a pilot basis, in four states, and only by "providing information on how they can access prime loans through other parts of the Citigroup organization." Citigroup has yet to explain why its "Maestro" computer underwriting system, which is claims is a major consumer protection safeguard at CitiFinancial, cannot simply be programmed to offer normal interest rate loans to those who qualify for them.

From the OCC letter, one might assume that the OCC is going to demand a more meaningful "referral up" program, among other things. But a number of market watchers (that is, arbitrageurs) who have contacted ICP report that OCC and FDIC staff are emphasizing to them that the agencies "cannot" impose conditions on the deal, and that their review is limited to safety-and-soundness and antitrust. Apparently, the agencies engaged in some preemptive spin control, preparing their arguments to opponents of the deal, that there was very little they could do. It's disingenuous spin-control, though. The agencies are required to consider the (broad) "integrity" factor. The agencies have responded that they can "only" look at Citigroup's integrity. As made clear on ICP's ongoing Citigroup page, and in ICP's September 25 comments to the OCC and FDIC, there are a number of Citigroup-specific issues that must be considered under this "integrity" factor. But what the agencies also try to blur is that Citigroup's proposal to acquire The Associates, the most controversial subprime lender in the United States, itself raises issues that must be addressed under the integrity factor.

It's surprising that these arbitrageurs can so easily reach OCC and FDIC personnel -- when community groups call these agencies, they are told it's inappropriate, or are "referred down" to community relations staffers who are playing no role in the merger review.

A cynic might say that the OCC's and FDIC's extension of their review times is an attempt, like the extension of the comment period from October 4 to October 18, to claim that the agencies did all they could. Certain state regulators are apparently preparing to impose conditions that go beyond those outlined in Citigroup's November 7 letter to the regulators. Reportedly, Citigroup's "domestic consumer finance" application in Georgia will only be approved if Citigroup commits to safeguards beyond those in the November 7 letter (an individual heard this directly from the agency, whose representative misapprehended the call as being from Citigroup itself). What the New York Banking Department will do, or require, is not yet known. The OCC and FDIC will not want to be seen as requiring LESS than state regulators. Which is another thing militating for the OCC and FDIC granting the (now 160-strong) hearing request(s).

Citigroup's submission to state regulators have become more and more vitriolic. In a November 16 letter to the Delaware Department of Insurance, Citigroup's lawyers at Skadden Arps intone that the November 9 testimony of the director of the Delaware Community Reinvestment Action Council "was essentially a collection of sound-bites [sic] taken verbatim from ICP's web site http://www.innercitypress.org/citi.html." Citigroup's submission annexed selected pages from a print-out of this web site, and argues that "[d]isingenuously... the executive director of ICP... chose not to participate" in the Delaware hearing... His failure to do so unmasks Protesters' 'ineffective participation' argument as a cynical ploy to manufacture a procedural claim." What's fascinating here is that where ICP has sought to "participate" -- for example, before the Missouri, Indiana and Wisconsin insurance regulators, and the South Dakota Division of Banks -- Citigroup and Skadden Arps have, in each instance, sought to exclude ICP's participation. One hearing that ICP neither attended, nor sought to attend (beyond the testimony of the director of DCRAC, who is also a member of ICP), Citigroup and Skadden characterize as a "disingenuous" or "cynical" non-appearance. Which is it? And, more to the point, what the heck is wrong with Citigroup?

After the NYBD's November 10 public meeting on the deal, the Wall Street Journal of November 13 reported ICP's testimony that, in the Buffalo, New York Metropolitan Statistical Area in 1999, Citicorp Mortgage, one of Citigroup's normal interest rate lenders, made 61 mortgage refinance loans to whites, and only two to African Americans. Citigroup's insured depository institution, Citibank (New York State), in Buffalo in 1999 made 109 refinance loans to whites, and only four to African Americans. The article then quoted a "spokeswoman for Citigroup" that "all of Citigroup's prime-lending units issued a total of 30 mortgage refinance loans to African Americans in Buffalo that year, compared with 352 for whites borrowers."

ICP verified the HMDA reports of Citicorp Mortgage and Citibank (New York State), and confirmed that together, they made six refinance loans to African Americans in the Buffalo MSA in 1999, and 170 refinance loans to whites in the Buffalo MSA in 1999. Beyond those two entities, Citibank, N.A. reports no applications for refinance loans from African Americans in the Buffalo MSA in 1999 (and one from a white applicant); Citibank F.S.B. reports no refinance data for Buffalo, nor does Citibank of Nevada. On November 13-14, ICP asked a Citigroup representative: what are the other "Citigroup prime-lenders" from which Citigroup's spokeswoman's claim to the Wall Street Journal derive? ICP received the answer on November 14: Source One.

Citigroup acquired Source One in the middle to end of 1999, Citigroup has been telling community groups that it is not responsible for the 1999 (or even 2000) loans of IMC, another company Citigroup acquired in 1999. And, for comparison's sake, Chase Manhattan has responded to an analysis of its "Chase Mortgage Company--West" unit's 1999 lending record by noting that this HMDA reporter was Mellon Mortgage Company, that Chase acquired in 1999 (as Citigroup acquired Source One). Chase says it "subsequently filed Mellon Mortgage Company's HMDA data under the name Chase Mortgage Company--West... Chase does not include Chase--West's HMDA data in its analysis of its own 1999 performance because Chase West's HMDA data reflects mortgage records prior to Chase's purchase." Chase's November 14, 2000, letter to the Federal Reserve Board. One must ask: how could the regulators accept both of these contradictory positions?

The Fed has before it two notices by Citigroup, to acquire Associates' banks in Hong Kong and the United Kingdom. The Fed is also the primary supervisor of Citigroup's subprime lender, CitiFinancial, into which Associates' U.S. operations would be folded. The Fed would also be responsible for enforcing the Gramm-Leach-Bliley Act provision, that if Citigroup acquires Associates National Bank, and its Needs to Improve rating under the Community Reinvestment Act, Citigroup must be prohibited from exercising certain of the new GLB powers.

That said, the Fed has refused to consider any of the comments submitted to it. FRB Associate Secretary Frierson has written that "Regulation K does not provide for a public comment process," and noted that the comments have simply been forwarded along to other regulators, including the South Dakota Division of Banks. On October 19, Mr. Frierson released redacted copies of two New York Fed e-mails, reflecting a meeting between Citigroup's regulatory lawyer Carl Howard and Fed staff (who, afterwards, though it was an acquisition of "Computer Associates," a Long Island technology firm). The rest of the e-mails are blanked out, and Governor Gramlich, in a November 9 letter, upholds the redactions.

In response to a second FOIA request, FRB Associate Secretary Frierson issues a November 6 letter, saying documents are being released. But the letter, and the documents, are regular mailed, and only arrive on November 17. Included are six more e-mails, this time from the Federal Reserve Board in Washington.

On October 2, 2000, FRB staffer Adrienne Hurt writes to the Fed's Scott Alvarez, Beverly Smith and Jim Michaels, that "I have been asked to confirm our next meeting with Citigroup [REDACTION]. An atty from Legal attended as well. Dolores asked me to confirm a second meeting that Citi requested. We are scheduled to meet with Citigroup on October 13 at 10.... I told Carl Howard to contact you directly. Carl said he plans to discuss how they plan to operate Associates [REDACTION]." As reflected below on this page, CitiFinancial's general counsel claimed, on October 18, that Citigroup had not met with the Federal Reserve about the deal...

What was that about "integrity," again?

Update of November 13, 2000: The New York Banking Department held its public meeting on Citigroup's applications to acquire Associates First Capital Corp.'s New York business, on November 10. Representatives of the federal Office of the Comptroller of the Currency and FDIC, both of which are considering Citigroup applications to acquire Associates' credit card banks, attended the public meeting. They heard witness after witness critique Citigroup's purported "reforms" of its and Associates' lending practices, and call on their agencies to hold nationwide hearings. As they returned to Washington at day's end, it was unclear that their agencies would do. Community representatives have begun complaint that since Comptroller John Hawke used to work for Robert Rubin, now in Citigroup's "Office of the Chairman," he should recuse himself from decision-making, and schedule a hearing (at least), to clear the taint.

Citigroup had three witnesses at the NYBD hearing. Chief Administrative Officer Charles O. Prince III (that's how he signed up) emphasized that NO reforms are "required," for Citigroup's applications be to approved. Marge Magner, who previously ran CitiFinancial, and has returned to that post, claimed that CitiFinancial's motto is "do the right thing, all the time, every time." Citigroup's head of "global community relations," Pam Flaherty, said that while many groups have claimed that Citigroup discriminates, it simply isn't true. As the next witness (ICP's representative) began to contest each of these points, Chuck Prince and Ms. Magner left the room. Pam Flaherty and Citigroup's Janet Thompson remained, scribbling furiously as witnesses attacked Citigroup, and smiling broadly during pro-Citigroup testimony (for example, the Brooklyn Public Library said it has received much financial support from Citigroup). Significantly, Citigroup did not get a single group to testify that the purported reforms it announced on November 7 were sufficient. But of course, Citigroup's position (enunciated by its self-described "defender of reputation" Chuck Prince) is that no reforms are "required." Developing...

Update of November 10, 2000: Today, the New York Banking Department is holding a public meeting on Citigroup's applications to acquire a half-dozen subsidiaries of Associates First Capital Corporation.That the NYBD, with jurisdiction only over New York State, would hold a hearing, while the federal Office of the Comptroller of the Currency and FDIC, which have nationwide jurisdiction, have still not scheduled hearings, has raised questions about the seriousness of the OCC's and FDIC's oft-expressed commitment to rooting out predatory subprime lending practices.

On November 9, the NYBD put out a list of 51 individuals and groups who had signed up to testify. First on the list are Citigroup's three witnesses: Chief Administrative Officer Charles O. Prince, EVP Marjorie Magner, and SVP Pamela Flaherty. Then... it's ICP, at 9:29 a.m. (prepared testimony is below). Groups from New York City, Rochester, Long Island, Durham, North Carolina, Chicago, Wilmington, Delaware, New Jersey, and San Francisco are slated to speak. Some witnesses will apparently testify in favor of Citigroup: several community development corporations, two YMCAs. A witness has signed up to speak for the Brooklyn Public Library. A witness has signed up to speak for the Local Initiatives Support Corporation (LISC) -- on whose board of directors Citigroup's Robert Rubin sits. At press time, LISC officials in Washington indicated that LISC will NOT testify. We shall see.

There will also be witnesses and attendees raising issues about others of Citigroup's standardless businesses, sometime around one p.m.... In an earlier version of our Update of November 6, we'd included an advance copy of a "forthcoming op-ed piece." It's now been published, in the American Banker of November 10, at page 12. So the final version is below, after the testimony.

Testimony of Inner City Press / Community on the Move

November 10, 2000 [9:29 a.m.]

Good morning. I'm speaking on behalf of Inner City Press / Community on the Move, an organization based in the South Bronx, and active elsewhere as well. We've filed written comments with the Department, on September 25th and since, opposing Citigroup's applications to acquire Associates First Capital, a high-interest rate lender which, among other things, is being sued for racial discrimination by the U.S. Department of Justice. As I'll explain, Citigroup's presentation and purported reforms would not meaningfully improve the Associates, or Citigroup's own practices.

First, though, I want to thank the Department for holding this hearing, and to urge the Office of the Comptroller of the Currency and the FDIC to schedule federal hearings on Citigroup's proposal.

Second, it seems important, at the beginning, to note the legal standards that apply to Citigroup's applications to the Department, to today's hearing, and the evidence that will be presented. Citigroup has applied under Section 345 of the New York Banking Law, to acquire control of Associates Financial Services Company of New York, Irving, Texas. Citigroup has also applied under Section 492-a of the Banking Law, which incorporates the standard of Section 493. The standards of Section 345 and 493 are identical: whether the "experience, character, and general fitness of the applicant... are such as to command the confidence of the community and to warrant the belief that the business will be operated honestly [and] fairly."

Our written comments to the Department, from September 25th onward, have questioned the "experience, character, and general fitness" of Citigroup, and, in even greater detail, whether Citigroup, including its November 7 announcement, warrant the belief that the business" -- Associates' and CitiFinancial's high-interest rate subprime lending -- "will be operated honestly [and] fairly." These businesses are not currently operated honestly and fairly;" Citigroup's purported reforms would not meaningfully improve them.

By all accounts, Associates is one of the most controversial subprime lenders in the nation, a company that can be, and has been, described as predatory. In the state of Georgia, for example, Associates is subject to a cease and desist order by that state's insurance commissioner, for imposing single premium credit life insurance on thousands of loans, in violation of state law. There is a related class action lawsuit, Wood v. Associates, the lead counsel on which you will be hearing from later today. The Federal Trade Commission is investigating Associates, in Detroit and, we believe, elsewhere, for systematically charging African American borrowers higher prices, regardless of their credit histories.

In 1997, our organization opposed Associates' application to acquire another credit card bank. [See, e.g., American Banker, January 27, 1997, at 1]. It was in that proceeding that a referral was made to the Department of Justice, that a pattern and practice of discrimination had been occurring at The Associates. We also found that Associates routinely raised the interest rates charged on the credit card accounts it acquired, from 18% to 22%, 24% and higher. In a moment, you'll hear from my friend and colleague about a loan he received from Associates at a whopping 29% interest rate.

We also opposed Associates' application to the Office of Thrift Supervision, when Associates was trying to set up a federal savings bank to get around state laws. The OTS refused to approve Associates' application. [See, e.g., "OTS Suspends Associates' Application," National Mortgage News, February 16, 1998]. But now, through this proposal, Citigroup proposes to bring Associates and its practices into the banking system, by acquiring it.

Citigroup's proposal legitimates, and pays a premium for, Associates' predatory practices. It should be noted that Citigroup's own subprime lending operations also appear to have few standards. Citigroup has [just] made various claims about its procedures. But we have been contacted by CitiFinancial borrowers who had their loans flipped; I am turning in, for the record, a sample loan by Travelers FSB, with a high interest rate, and a prepayment penalty to get out of the loan. In 1999, Citigroup acquired the troubled subprime lender IMC Mortgage, and has yet to improve its practices to any perceptible degree. Just last month, IMC (and Citigroup) were named in a class action lawsuit in Illinois, for violating that state's usury law. [See, e.g., Chicago Sun-Times of September 27, 2000, at 34, "Lenders preyed on poor homeowners, lawsuit says"]. Even more recently, Citigroup's Salomon Smith Barney unit has been sued, in federal court in Philadelphia, for enabling and essentially controlling predatory loans made by Ameriquest. [See, e.g., "Citigroup Unit Sued on Philadelphia Loans," Philadelphia Inquirer, November 7, 2000]. All of these are relevant under the "experience, character and general fitness" standard of Section 493 of the New York Banking Law. ICP contest prior determinations under this factor: Citigroup is a company without standards, which, because of its size, and its strategy of hiring ex-government officials, has been able to dominate its purported regulators, and defend its reputation by sleight of hand, rather than meaningful safeguards of reforms.

Particularly in this context, the New York Banking Department is to be commended for holding today's hearing. The problem is, the Banking Department only has jurisdiction over Citigroup's, and Associates', practices in New York State. There are federal applications pending at the Office of the Comptroller of the Currency and the FDIC, and both of those agencies have nationwide jurisdiction. The agencies, along with the Illinois Banking Department, have sent representatives to today's hearing. But that does not reduce the need for federal hearings on this proposed merger. Advocates from other states with whom we are in touch were tempted to come to today's hearing, due to the lack of any other forum, but concluded that seven minutes before a New York State agency that has no jurisdiction in their communities weren't worth it. Later, we'll be reading into the record the testimony of the Delaware Community Reinvestment Action Council. But I want to emphasize that it would be shameful if the OCC and FDIC, the only federal regulators considering this deal, don't, in the coming week, schedule federal hearings.

We have submitted written comments to the Department, from September 25th onwards, which demonstrate that Citigroup's normal interest rate lenders disproportionately exclude and deny African Americans and Latinos, while Citigroup's subprime lenders, and even more so, Associates, target these same communities with high cost loans. In the limited time available, here are two examples, one from New York State, and one from elsewhere:

In the Buffalo, New York Metropolitan Statistical Area in 1999, Citicorp Mortgage, one of Citigroup's normal interest rate lenders, made 61 mortgage refinance loans to whites, and only two to African Americans, a ratio of 30.5 to one. Citigroup's insured depository institution, Citibank (New York State), in Buffalo in 1999 made 109 refinance loans to whites, and only four to African Americans, a ratio of 27.25 to one. Citibank (New York State) denied the applications of African Americans more than three more frequently than those of whites -- essentially driving the disproportionately denied African Americans to higher-cost lenders, including the one that Citigroup now proposes to buy. [snip - contact ICP for more recent data]

We've also opposed Citigroup's applications to other state regulators, including the Missouri Department of Insurance, where a more formal hearing was held, on October 18. At that hearing, under oath, Citigroup's witness, the general counsel of CitiFinancial, said that Citigroup's due diligence on The Associates was all done over the Labor Day weekend, and that Citigroup wouldn't know what to fix at The Associates until after the deal was consummated. He also claimed that Citigroup did not know, and had not asked its regulators about, the effect of Associates National Bank's rare Needs to Improve rating under the CRA, which resulted from the Office of the Comptroller of the Currency finding that a reason to believe a pattern and practice of discrimination exists at The Associates. These issues, and mis-statements under oath by Citigroup, are also being submitted into the record, and, again, are relevant under the "experience, character and general fitness" standard of Section 493 of the Banking Law.

As you know, Citigroup on November 7 announced certain purported reforms of the practices of CitiFinancial. We find these less than meaningful, often mislead, and full of loopholes. I will amplify on that and in a written submission. In summary, Citigroup currently charges up to nine percent -- nine hundred basis points -- in fees on brokered loans, much higher even than other subprime lenders. Citigroup's "reform"? To reduce it to eight percent.

Citigroup intends to continue selling single premium credit life insurance, where this cost is rolled into the loan, and never recouped by the borrower. Citigroup intends to continue imposing pre-payment penalties, so that people it traps into high cost loans cannot get out from under them, by refinancing with another lender. Citigroup intends to continue imposing mandatory arbitration clauses on loans, so that those wronged can't even sue, as a class, or seek punitive damages. For these reasons, Citigroup and its proposal do not "command the confidence of the community" and do not "warrant the belief that the business will be operated honestly [or] fairly." Citigroup's November 7 commitment is illusory, and only further militates for the federal hearings that the OCC and FDIC should now schedule and hold. The New York Banking Department, while to be commended for holding this hearing, should not approve Citigroup's applications.

You'll now hear from my friend and colleague about Citigroup's and Associates lending in Newark and Philadelphia, and about his personal experience with The Associates. < >

The Associates lender which made this 29% interest rate loan is one of the entities that Citigroup has applied to the New York Banking Department to acquire. Citigroup's applications should be denied. For the record, we ask the Banking Department to extend the comment period so that we and other groups can respond to the new information arising at today's hearing, including Citigroup's misleading presentation.

It would be shameful if the OCC and FDIC do not, now, schedule and hold federal hearings on Citigroup's proposal. Citigroup is a company involved, and proposing to get bigger, in predatory lending. More generally, Citigroup is a company without any meaningful environmental or social standards -- issues about which you will be hearing this afternoon. Citigroup's applications should be denied. Thank you.

[And:] The American Banker , November 10, 2000, Friday, Pg. 12

Citi-Associates Deal Proves Fin Mod Oversight Inadequate BY MATTHEW LEE

When Congress repealed the Glass-Steagall Act last fall, proponents of this deregulation said that the conglomerates that would be created would be "functionally regulated."

Application requirements, and public input, might be reduced, but nothing would fall through the cracks, they said.

Well, on Sept. 6, Citigroup Inc. announced its intention to buy a controversial subprime lender, Associates First Capital Corp. Even though Associates owns three credit card banks -- one of which has a rare "needs to improve" rating under the Community Reinvestment Act -- Citigroup's proposal triggers no requirement for Federal Reserve Board approval because of the Gramm-Leach-Bliley Act.

At the federal level there are only changes in Bank Control Act "notices" to the OCC and the FDIC.

The Inner City Public Interest Law Center of Bronx, N.Y., opposes Citigroup's proposal, in part because it would legitimate some of the most troubling practices in subprime lending, such as single premium credit life insurance. We have been commenting on the overall deal to state regulatory agencies, whose approvals are required.

On Oct. 10, I appeared at a hearing of the South Dakota Banking Commission with a right to cross-examine witnesses. I asked Citigroup's witnesses if and how they intended to improve Associates' practices.

"We stand on our written submissions," they said.

I asked the chairman of the South Dakota Banking Commission to direct Citi's witnesses to respond. "We don't [have a] gun," he said. "We can't make them answer."

A week later the South Dakota Banking Commission approved Citigroup's application to acquire Associates' high-interest credit card lender, Hurley State Bank.

The next stop was Jefferson City, Mo., for the Missouri Department of Insurance's hearing on Citigroup's application to acquire Associates' Northfield Insurance Co. Over Citigroup's opposition, the Missouri agency granted Inner City standing and a right to discovery. But Citigroup refused to answer our questions. Instead it directed its St. Louis law firm, Bryan Cave, to submit 41 pages of oppositions to our standing.

At the Oct. 18 hearing Citigroup's witnesses confided that its due diligence on Associates had all been done over the Labor Day weekend, and that they wouldn't know what to "fix" at the company until after they acquired it.

The next battles loom at the Nevada, Texas, and Tennessee insurance departments. In each state Citigroup has had its local counsel oppose Inner City's requests to participate in hearings. Citi has even developed a boilerplate indictment, a two-page presentation called "Inner City's Agenda."

The name-calling obscures the fact that Citigroup has the burden of proving that the acquisition will serve the public interest.

The states' insurance holding company laws are based on a model statute put out by the National Association of Insurance Commissioners. But there's little consistency in the way the states implement this law.

Minnesota, for example, has a regulation saying that hearings are not mandatory. We've been told by Minnesota regulators that they only hold hearings when they "intend" to deny an application. The public's views, and evidence, apparently play no role in their process.

Under exactly the same statutory language, Inner City was found to have standing in Missouri but not in Indiana.

The Indiana Insurance Department, nevertheless, ordered Citigroup to answer some of Inner City's written questions. But Citigroup objected to the questions, and got its objections upheld, in a hearing in Indianapolis that neither Inner City nor any other member of the public was allowed to participate in as a party.

The Delaware Insurance Department claims that all portions of Citigroup's application to acquire Associates' Delaware-domiciled insurer are confidential until after they hold their hearing. What, then, could people testify about?

From all of this, it now appears that "functional regulation" may just be a code-word for "rubber-stamp."

The OCC and the FDIC, while granting a brief two-week extension of their comment periods, have refused to schedule a public meeting on the deal, despite receiving 150 comments opposing it.

The New York Banking Department has decided to hold a hearing today, but has jurisdiction only over Citigroup's and Associates' practices in that state -- yet another twist on functional regulation.

Three days before the hearing Citigroup released a copy of a letter it has sent to its regulators, committing to certain reforms: pilot programs in Maryland, New York, Illinois, Missouri, and Virginia, creating a new monthly premium credit life insurance product (while still offering financed, "single-premium" insurance, which is rolled into the loan), maintaining prepayment penalties and mandatory arbitration clauses, and lowering fees on brokered loans from 10% to 8% (still higher than most other subprime lenders).

Only in this light can we understand the comment of Citigroup's chief administrative officer, at the Nov. 7 press conference, that Citigroup is and will be doing "well beyond what anyone is doing."

In the one pro-CRA provision of Gramm-Leach-Bliley, a financial holding company that owns a bank with a less-than-satisfactory CRA rating is supposed to lose its new powers under the act. Yet the Fed, which fought to expand its turf in the deregulation bill, is nowhere to be seen as the largest bank acquires one of the most troubled subprime lenders.

The law's "regulatory streamlining," in this case, threatens to turn a recapitalized predatory lender loose in our low-income communities. The law should be revised.

Update of November 8, 2000: On election day, November 7, Citigroup called an afternoon press conference about its proposed acquisition of Associates First Capital Corporation. There unveiled was a 22-page letter from Citigroup to its regulators, purporting to address the "criticisms that have been leveled at the proposed transaction."

Citigroup's commitments, however, are less than meaningful, and hardly resolve the detailed criticisms of Associates' and CitiFinancial's practices that have arisen. For example:

CitiFinancial, which for years has been criticized for making high interest rate loans to people, predominantly minorities, who would actually qualify for normal interest rate loans, now says it will begin a "pilot program through the CitiFinancial branch office network located in four states (Maryland, Missouri, New York and Viriginia" whereby "applicants for whom a preliminary review indicates that they may qualify for a prime loan... will be provided information on how they can access prime loans through other parts of the Citigroup organization." Letter at 7.

This "reform" appears to involve little more than providing an applicant with the phone number of another Citigroup office (quite possibly with the advice that a normal interest rate loan will take longer to process) -- and this, only in four states. Elsewhere in the Letter, Citigroup makes much of its "all-in-one loan underwriting" system, Maestro. Why wouldn’t "Maestro" simply offer prime-candidate applicants a normally priced loan, rather than a phone number? Note that when the Office of the Comptroller of the Currency approved First Union's application to acquire the subprime lender Money Store, the OCC got First Union to commit to offering normal-priced credit right at the Money Store offices. More importantly, this "commitment" does not even purport to apply to brokered loans. Associates is under investigation by the Federal Trade Commission for brokered loans that charge African Americans more than similarly-situated whites. Citigroup's November 7 commitment does not even address this.

Single premium credit life insurance, where the cost of insurance is prepaid (that is, lent to the borrower, and added to the loan) is a practices that has been condemned not only by community and consumer groups, but also by the Treasury Department and HUD. Citigroup, rather than committing to ending this practice, simply says that it will also offer "monthly premium credit insurance." But since, for single premium insurance, it will pay a commission up front, while paying the commission monthly on monthly premium insurance, the front line employees still have an incentive to more aggressively push single premium insurance. CitiFinancial also makes more money off single-premium insurance, which, its Letter says, it "has long offered."

Similarly, imposing pre-payment penalties on subprime loans has been roundly criticized, as locking consumers in to high cost loans. Rather than eliminating this practice, CitiFinancial says it will "provide each branch office customer a choice between a product with a pre-payment fee (with a lower interest rate) and a product without a pre-payment fee (but with a higher interest rate). How high this "higher interest rate" would be is not discussed.

CitiFinancial intends to continue imposing mandatory arbitration clauses in its and Associates' loans, and, on issues surrounding brokered loans, commits only to a "test project" in two states, Illinois and Maryland. Everywhere else, CitiFinancial's commitment is that it "will not make loans where the customer will pay more than 8% in broker and lender fees combined." This eight percent "cap" is significantly high than other lenders, including other subprime lenders. Only in this light can we understand the comment of Citigroup's Chief Administrative Officer, at the November 7 press conference, that Citigroup is and will be doing "well beyond what anyone is doing"...

The business press' stories about Citigroup's commitment were mixed. Some omitted any mention of the November 10 New York Banking Department public meeting on Citigroup / Associates -- apparently, it's not among "all the news that's fit to print." The Philadelphia Inquirer's reporter asked Citigroup whether these commitments will apply to the loans purchased and underwritten by Citigroup's Salomon Smith Barney. The Inquirer of November 8 reports that Citigroup "will encourage its Salomon Smith Barney affiliate to adopt similar limits." We'll see. The Fort Worth Star-Telegram of November 8 reports: "In a related matter, Citigroup said that today it will release a report that shows that the Citigroup does not discriminate against racial minorities or low-income borrowers." So when will Citigroup -- which declined to respond to the comments filed with the OCC and FDIC from September 25th onward -- release this report? At the November 10 hearing? All of the stories, however, noted that Citigroup's announcement is meant to "assuage" critics of the deal, and of Citigroup. NPR's Nightly Business Report, notwithstanding Citigroup's Bob Willumstud's protest that "[i]t is important to recognize that this review is not required for the approval of pending applications," reported that "[t]he moves are meant to help clear the way for Citigroup's planned purchase of Associates."

The main question, then, is whether this wordy but less than meaningful Letter will, in fact, "clear the way" for Citigroup's takeover of The Associates. On November 10, the New York Banking Department is holding a hearing on Citigroup - Associates, from 9 to 5, at 121st and Broadway in Manhattan. Since the NYBD only has jurisdiction over Citigroup's and Associates' practices in New York State, questions are mounting about why the OCC and FDIC, which have nationwide jurisdiction, have not scheduled public hearings. Requests to the OCC and FDIC for just this are being made. Citigroup still requires approvals from several state insurance regulators, and certain of those agencies' decisions may be challenged in court. And, even if the deal does close (Mr. Willumstud's letter began, "We expect the acquisition to be completed shortly"), the emerging campaign to hold Citigroup to meaningful standards will not, it seems clear, be persuaded or blunted by Citigroup's November 7 announcement. Developing... Until next time, for or with more information, contact us.

Update of November 6, 2000: In the run-up toward the New York Banking Department's November 10 public meeting on Citigroup's application to acquire Associates (the sign-up form is here), Citigroup flacks have been telling community groups that "some announcement" will be made, on November 8 or 9. Other sources indicate that this "announcement," reportedly a set of vaguely-defined reforms Citigroup would institute at The Associates, has already been approved by Messrs. Weill and Rubin, and is now only awaiting internal approval from Citigroup's legal department. The same Citigroup legal department one of whose lawyers schmoozed the Fed on September 5 (the day before the deal was announced), about Associates National Bank's Needs to Improve CRA rating, while another of whose lawyers, in sworn testimony on October 18, said he didn't know if Citigroup has communicated with the Fed about this. Doesn't lead to a lot of confidence about this possible "announcement"...

ICP is preparing its testimony for the November 10 NYBD hearing, and it will be posted in this space. ICP is also asking the OCC and FDIC, in light of the NYBD's decision to hold a hearing, but with only New York jurisdiction, to reconsider their denials to date of the many hearing requests they've received. The OCC, we've been told, has received at least 150 comments on Citigroup's proposal -- seemingly the most ever on a Change in Bank Control Act notice. Meanwhile, the Fed on November 6 will consider, at a closed meeting, an application by Citibank, N.A. to expand its business in Santiago, Chile. The Fed's received various comments opposing Citigroup, on which it has refused to act, or even to consider in connection with other Citigroup applications pending before it...

Perhaps because of this incredibly lax regulatory scrutiny, Citigroup appears blissfully (or arrogantly, depending on your perspective) unconcerned about obtaining regulatory approvals. Bloomberg of November 4 reported (citing the Dallas Morning News), that "Associates First Capital Corp., which Citigroup Inc. is acquiring for about $31 billion, will fire about 2,100 workers, or some 25 percent of its workforce in the Dallas area, the Dallas Morning News reported, citing company spokesman Dave Sandor. All but 100 of the workers to be let go work in the company's headquarters in Las Colinas, a suburb of Dallas, the paper said. About 500 employees were notified yesterday and 1,600 were told their jobs will be eliminated next year, the paper said." Also, Associates recently sold $1.5 billion in "floating rate notes" -- through Citigroup's Salomon Smith Barney unit. The "integration" has already begun...

But, in a parallel universe where the na�ve still believe in the rule of law, other state proceedings on Citigroup's applications for regulatory approval continue. ICP turned in its post-hearing brief to the Missouri Department of Insurance on October 30, and awaits decisions on its hearing requests for other Departments. The Delaware Insurance Department has taken the absurd position, according to its chief examiner, that Citigroup's Form A application is "confidential until after the hearing." What, then, is the public supposed to testify about? The Delaware Insurance Commissioner, Donna Lee Williams, is elected, with campaign contributions from the industry, including Citigroup. Until next time, for or with more information, contact us.

Update of October 30, 2000: Citigroup's proposal to buy The Associates has been in the news, but not enough attention has been paid to the regulatory process. Citigroup has applied not only to Office of the Comptroller of the Currency and the FDIC, but also to a number of state regulators.

On October 24, the New York Banking Department announced a public meeting on Citigroup's applications, to be held on November 10 at the Union Theological Seminary on Broadway and 121st Street in New York City. The sign-up form is here.

ICP, meanwhile, has been focusing on Citigroup's applications to state insurance regulators, to acquire Associates' (also questionable) insurance companies. Many of Associates' predatory lending practices are intertwined with insurance, including single premium credit life insurance. Associates has other insurers, engaged in so-called "surplus-lines" insurance -- essentially, subprime insurance. These companies -- and Citigroup's surplus lines insurers -- write policies for such things as private prisons. Then, when guards abuse inmates, Associates' insurers refuse to pay (below, the example is of Associates' Northfield Insurance Company). Here are excerpts from the October 18, 2000 hearing of the Missouri Insurance Department, with ICP's representative cross-examining Citigroup's and Associates' witnesses:

[ICP's representative] MR. LEE: I'll

10 ask you if you're aware of it. If you are, we can proceed.

11 There's a report that one of Northfield's insureds, the

12 Franklin County, Ohio, that Northfield insured the prison

13 there.

14 This is all -- this is as discussed and

15 reported in the Cincinnati Inquirer of June 19 of this year,

16 and that following the alleged violation of inmates' rights,

17 that Northfield has refused to pay on the policy. Are you

18 aware of that case?

19 [Northfield's] MS. SUTHERLAND: No, I am not.

20 MR. LEE: And I guess to Mr. Michener, are you

21 aware of that case?

22 [Citigroup's] MR. MICHENER: No.

ICP also asked about the legal effect of Associates National Bank's rare Needs to Improve rating under the Community Reinvestment Act. Here's ICP's representative cross-examining Martin Wong, the general counsel of Citigroup's high-rate lender, CitiFinancial:

7 [ICP's MR. LEE:] ....is it your understanding, Mr. Wong, that

8 Associates National Bank currently has a needs to improve

9 Community Reinvestment Act rating?

10 MR. WONG: That's correct. That's my

11 understanding.

12 MR. LEE: And is it -- do you -- what, if any,

13 legal effect on Citigroup's activities if the overall merger

14 is consummated would that rating have?

15 MR. WONG: We do not believe that it will have

16 any effect on Citigroup's activities ongoing after the

17 transaction occurs. We obviously in our world, the

18 Citigroup world today have several banks, several depository

19 institutions that are subject to Community Reinvestment Act.

20 All of our Citigroup depository institutions

21 have satisfactory or better rating for CRA. We intend

22 promptly to put a plan together regarding the Associates

23 National Bank CRA problem and to promptly rectify the needs

24 to improve rating and to bring it up to satisfactory or

25 better.

0066

1 MR. LEE: I just -- no. I appreciate that. I

2 guess what I -- when you were saying no effect, I wanted to

3 ask whether -- given the expertise you were recited on

4 direct testimony, whether it's your understanding that, upon

5 consummation of the proposed overall merger, Citigroup would

6 be precluded from certain activities or acquisitions to

7 which it is today entitled prior to consummation?

8 MR. WONG: Again, we do not believe that the

9 acquisition of Associates First Capital Corporation will

10 have any impact on our ability to do business going forward.

11 MR. LEE: And I'm sorry to press the point.

12 I'm asking you legally, not whether you had planned to make

13 acquisitions under new powers of the Financial Modernization

14 Act, but whether it's your understanding that acquiring a

15 bank with that rating would, until the rating is, as you

16 said, raised, preclude acquisitions that may -- legally

17 preclude Citigroup from acquisitions they could otherwise

18 make?

19 MR. WELCH: Your Honor --

20 MR. LEE: Legally. I think you understand the

21 question, Mr. Wong.

22 MR. WELCH: Your Honor, I'll object on the

23 grounds that it's been asked and answered twice. If the

24 witness can add anything further, I think he's free to do

25 that.

0067

1 MR. LEE: I've tried to be very specific. I'm

2 asking whether or not it's Mr. Wong's understanding that

3 legally Citigroup would be precluded, not whether as a

4 business matter you feel there would be an effect, legally.

5 MR. WONG: Well, I think embedded in your

6 question, I guess, is you're asking for a legal

7 interpretation under the newly enacted Graham, Leach, Bliley

8 law. As you know, Mr. Lee, that is a very new law, and that

9 the Federal Reserve is in the middle of perhaps even writing

10 regulations relating to the enforcement of that law.

11 It would be -- I could not render a legal

12 opinion on that -- on your question because of the newness

13 of this law and the fact that the Federal Government

14 themselves have not rendered interpretations regarding this

15 law.

16 MR. LEE: I guess I note that there's actually

17 already a regulation out on this. I guess -- here's another

18 question. You said that you were -- you were involved in

19 the -- indirectly involved in the negotiation of the

20 transaction. Was this, the issue you've just been

21 describing, was it, to your knowledge, considered during the

22 negotiation or the board's deliberation on the transaction?

23 MR. WONG: The satisfactory -- I'm sorry. The

24 CRA rating of Associates National Bank was certainly brought

25 to our attention during the due diligence process, and we

0068

1 certainly considered the matter as part of the overall due

2 diligence transaction consideration.

3 MR. LEE: And how so -- that's why I go back

4 to the position. It would seem that the consideration of it

5 would ride on this what you're calling legal interpretation,

6 how -- what did the due diligence or the conclusion consist?

7 MR. WELCH: Your Honor, I'll object. This is

8 now, I think, the fourth time. I think he's answered the

9 question as best as he can. I think we're going -- I don't

10 think he can be asked to go any farther than he can, and I

11 think we should move on respectfully.

12 MR. LEE: I want to say that it's a question

13 that we asked under an interrogatory and found the answer

14 extremely nonresponsive. We didn't have time to raise it.

15 We've objected to the hearing taking place today, but I

16 think it's -- it's not a question out of the blue, and I

17 feel that the witness is not -- is not -- here's the

18 difference. Here's a much more practical approach.

19 If, as you say, Citigroup considers it a new

20 area of the law, an unsettled question, what is Citigroup's

21 plan of action to try to get resolution of the issue prior

22 to consummation of the proposed transaction?

23 HEARING OFFICER MARTIN: If the witness has

24 anything further to add on that, you may answer it.

25 MR. WONG: Not much more. Again, I would --

0069

1 perhaps this may sound like a flip response, but it's not

2 intended to be. This is a question perhaps that you can ask

3 of the Federal Government because, again, this is -- if this

4 is an issue, it is an issue that they will need -- that

5 they'll need to help us resolve at the end of the day.

6 Again, we take the position that the

7 acquisition of Associates First Capital Corporation will not

8 impact our ability to conduct business going forward, and

9 that's all I -- <snip>

11 MR. LEE: One follow-up question, Mr. Wong.

12 To your knowledge, has Citigroup sought a ruling by the

13 Federal Reserve Board on this issue?

14 MR. WONG: I do not know. I do not have an

15 answer to the question. I do not know the answer to that

16 question.

Inner City Press has been trying to get "the answer to that question" -- whether, as Citicorp and Travelers did in 1998, the now-combined entity has sought private advice and assurances from the Federal Reserve Board. ICP has just received from the Fed, in "further response" to its September 19 Freedom of Information request, partially blanked-out copies of two Fed e-mails, both from Thursday, September 7, the day after Citigroup announced its plan to acquire The Associates.

The New York Fed's Joyce Hansen writes to Thomas Baxter: "This follows up on the call Bill, Betsy and I had with Carl Howard on Tuesday where he disclosed that [Associates] has three credit card banks, one of which is a Delaware national bank with a less than satisfactory CRA rating." The rest of the e-mail has been withheld from ICP. But note that "Tuesday" was September 5 (the day before the deal was announced), and that Carl Howard is one of Citigroup's regulatory lawyers. So, as in 1998, the Fed has been willing to meet behind closed doors with companies who will later have to submit applications subject to public comment, and give out advice, that the Fed then withholds from the public. The e-mail also calls Mr. Wong's answers, above, into question. In the above-quoted portion of the hearing, Mr. Wong claimed that he (and by implication Citigroup) have not knowledge regarding whether the acquisition of a bank with a Need to Improve CRA rating, as here proposed, would result in a loss of powers -- powers that Citigroup's competitors would not lose. But the law, and regulation, are clear: 12 U.S.C. 1843(l)(2), and 12 CFR 225.84(a).

ICP has now raised the inconsistencies in Citigroup's witnesses testimony, and other matters, to a number of other venues. In each, Citigroup's local counsel responds with 40-page blasts of bombast, each with an identical section entitled "Inner City's Agenda." What an ethical company! What a consumer and community friendly company! What a... Citigroup!

Update of October 23, 2000: The fight against Citigroup's applications to acquire The Associates has continued: On October 18, the Missouri Department of Insurance (MDI) held its hearing on Citigroup's application to acquire Associates' Missouri-domiciled insurer, Northfield Insurance Company. At the beginning of the hearing, Citigroup's lawyers sought again to exclude Inner City Press from participating. The MDI upheld its previous ruling, that ICP has standing and a right to cross-examine. The hearing lasted over three hours.

Among other things (for purpose of this Report), Citifinancial's general counsel, Martin Wong, testified that the due diligence for the deal was done over the Labor Day weekend, and that Citigroup knows very little about Northfield Insurance Company. Over Citigroup's objections, Mr. Wong was directed to answer ICP's questions about the litigation against The Associates listed in ICP's filings. Mr. Wong confirmed the FTC investigation into Associates in Detroit, for racial discrimination, and stated that he was unaware of the facts of litigation against Associates concerning single premium credit life insurance. Citigroup's witnesses were unable to describe Citigroup's current activities in the lines of insurance offered by Northfield, and were directed to make a written submission after the hearing. Citigroup's insurance witness, in the claim of the day, said the Citigroup is the "most knowledgeable group about the Gramm-Leach-Bliley Act and its implementation." Strangely, however, Citigroup's Mr. Wong, when questioned about the legal effect of Associates National Bank's Needs to Improve CRA rating, said that the law is unclear, and that ICP should ask the Federal Reserve Board. We have; we asked Mr. Wong is Citigroup had asked the Fed about this. Mr. Wong said he didn't know. Both sides were given ten days to submit post-hearing briefs.

Since the hearing, ICP has received a copy of Citigroup's submission about its "surplus lines" insurance, which includes, as one of the insurance policies written by "TPC/Gulf Select" in Missouri in 1998, "U.S. Risk Underwriters, Inc.--Private Prisons." Ah, Citigroup... We will be running updates on this site.

There is, of course, a more amorphous process going on. In early October, Rep. John LaFalce (D-NY) sent a letter to Citigroup's Sandy Weill and Robert Rubin, expressing concern about Citigroup's Associates First Capital proposal. But Rep. LaFalce went out of his way, in the letter, to praise Citigroup, writing that "[w]hile I have always had the utmost respect for Citi as a good corporate citizen, I am concerned that Citi is acquiring a lender that community advocates have for some time placed among the worst predatory lenders in the country." Rep. LaFalce's request to Weill and Rubin was that they meet with him and the head of a credit union in Durham, N.C., to discuss reforms that Citigroup might implement at The Associates after Citigroup's acquired it.

While it is unclear if Rep. LaFalce has met with Citigroup officials, and while it does not appear that either Weill or Rubin have met with any advocates -- whether community groups or legislators -- in connection with Citigroup's applications, the Citigroup "placation team" traveled to North Carolina on October 19. Reportedly, Citigroup's Chuck Prince offered his "personal" fax number, and invited advocates to fax him copies of the documents behind particularly controversial Associates loans. From all accounts, Citigroup did not detail any meaningful changes of its or The Associates' practices. Nevertheless, the Raleigh, N.C. News and Observer of October 20 quoted one attendee as being "cautiously optimistic." National Mortgage News' Washington News page reports that "a spokeswoman for Rep. LaFalce said the congressman believes Citigroup is being responsive."

Two questions (at least) are raised by this. The first is an observation that leads to a (rhetorical) question: the corporate media, in its coverage of Citigroup's proposal to acquire The Associates, has by silence implied that regulatory approval of the proposal is automatic, or that there IS no regulatory process in which the proposal can be opposed. Question: and who does this (mis-) representation serve, if not Citigroup? Second, given Citigroup's donations to and domination of not only the Republican Party, but also most Democrats in Congress (see, for example, most Democrats', including Rep. LaFalce's, support for the Gramm-Leach-Bliley / Citigroup Relief Act in 1999), one might question Rep. LaFalce's ambivalent approach toward Citigroup's Associates proposal: praising Citigroup but asking that Citigroup meet with the founder of community development credit union. The meeting is done, no reforms are offered or announced; Rep. LaFalce's spokeswoman nevertheless says that " the Congressman believes Citigroup is being responsive" (NMN Washington News, see above). This question is not meant to malign anyone's (but Citigroup's and perhaps Rep. LaFalce's) motives -- but the question must be asked... Developing....

Update of October 16, 2000: Opposition to Citigroup's proposal to acquire the troubled subprime consumer finance lender Associates First Capital has continued to grow. Rather than make any presentation of meaningful "reforms" that Citigroup would implement at The Associates, Citigroup officials have been flying and calling around the country, asking community advocacy groups to rely on changes Citigroup purportedly made to the insurance company Primerica. Few to no groups have been convinced; ICP is entirely unconvinced.

The Office of the Comptroller of the Currency and the FDIC extended their comment period on Citigroup's Change in Bank Control Act notices to October 18; ICP's October 16 submission to the FDIC is set forth below. It recites, among other things, a list of cases against The Associates that the companies had sought to withhold from the public (ICP has asked the FDIC, OCC and Federal Reserve Board to now inquire into all of these cases). It also provides a short report on two of the state proceedings in which ICP is opposing Citigroup's applications to acquire Associates' subsidiaries. The presentation in ICP's letter to the FDIC, below, is relatively dry; here is further detail:

Citigroup needs the approval of the South Dakota Division of Bank, to acquire Associates (subprime) credit card bank, Hurley State Bank. ICP commented to the SDDB on September 25; on October 2, ICP was granted "full party" status in the proceeding by the SDDB. Nevertheless, Citigroup's lawyers faxed a letter to the SDDB on October 9, at 11 p.m., opposing ICP's participation. Citigroup's letter argued that "subject to the discretion of the Commission or Director, Inner City may be allowed to comment on the proposed acquisition not as an interested party to the hearing, but as a member of the general public. However, Inner City's request to be a party to this proceeding in any other capacity should be denied." Emphasis added.

ICP responded that "it seems that Citigroup misperceives its status, as a publicly-traded, for-profit corporation seeking a non-automatic regulatory approval. That status, or role, does not include deciding who may or may not be 'allowed' to comment and participate, a role reserved, here, for the Director on behalf of the Commission. As noted, ICP has already been granted party status."

Citigroup repeated the same arguments at the beginning of the October 10 hearing. Citigroup's arguments were rejected, and the hearing began, with ICP having full party status and the right to cross examine. While ICP is still awaiting the transcript (Citigroup has already ordered it), here's a brief description of the hearing:

Citigroup's Eugene Rowenhorst testified for fifteen or twenty minutes. He said, among other things, that Associates' credit card operations will be combined with Citigroup's, at some later date; that Citigroup will "implement its policies." He spoke about community development, both in Sioux Falls and nationwide, claiming a large increase in Citi's lending to "minorities" from 1997 to 1999. He recited Citigroup's banks' CRA ratings. He said that Citigroup "denies" ICP's allegations. He said that Citibank, N.A. reaches out to "minorities" in New York City. Then he read from Citigroup's Change in Bank Control notice to the FDIC, that "legitimate questions about the Associates have been raised, by regulators, community groups and the media," and stated that "Citifinancial has policies and procedures that will address the issues raised by Inner City." He stopped, and one of Citigroup's lawyers, Dave Zinbeck (phonetic) announced that Citigroup was "resting its case."

ICP began cross-examination. First, ICP asked about a new structure to the merger, alluded to in a letter Citigroup had sent the Commission the night before, including a chart with some new intermediary holding companies between Citigroup Inc. and Hurley State Bank. Dave Zinbeck said this was decided by the "tax and accounting guys," but changed nothing.

ICP asked about Hurley State Bank's credit card interest rates. The Citigroup people said they didn't know. ICP asked that they submit something in writing after the hearing.

ICP asked about Associates National Bank's Needs to Improve CRA rating, and its effect on Citigroup under Gramm-Leach-Bliley Act. Dave Zinbeck objected, saying it was irrelevant. ICP said that it goes to Citigroup's financial strength, and that they might as well answer, if they had an answer. Someone (Chairman Lillibridge or Director Duncan) sustained Citi's object that the question was irrelevant. ICP preserved its objection for the record.

ICP quoted Mr. Rowenhorst's testimony about "policies and procedures that will address" our concerns, and asked what these would be. Mr. Zinbeck said that Citigroup stands on what it has submitted: just the statement that things will change. ICP objected, and said the record is incomplete. Mr. Lillibridge said, "We don't have a gun -- we can't make 'em answer."

ICP asked, in light of Mr. Rowenhorst's presentation of increased Citigroup lending to minorities, how much of this is subprime lending.

Mr. Rowenhorst said, "we do not discriminate."

ICP objected, as non-responsive. "How much is subprime?"
Rowenhorst: "It's not predatory."

ICP: "That's not what was asked."

Mr. Zinbeck: "We don't have that information."

ICP: "Can you submit it later into the record?"

Mr. Lillibridge: "The Commission will rule on that later."

ICP asked about Chicago Board of Option Exchange / SEC investigation into trading in Associates options just prior to the deal's announcement, through SSB. Mr. Duncan said, "That's irrelevant." ICP said it goes to the character and fitness of Citigroup. Duncan: "Objection noted. Move on."

ICP turned back to Hurley State Bank: "What due diligence was done of Hurley?"
Rowenhorst: "I wasn't involved."

ICP: "Continue the hearing until someone who can testify to this can attend." The Commissioners said nothing.

ICP asked about Citigroup's safeguards against money laundering, in light of the Raul Salinas matter. They objected as irrelevant. ICP preserved its objection to them not answering, referencing the "character and fitness" statutory factor.

ICP asked about the status of DOJ discrimination investigation of Associates in Detroit. Director Duncan said, "If I were you, I'd be focusing on Citigroup." ICP: "We tried to, they haven't answered a single question. Anyway, you can't bar our questions because they doesn't fit into what you think our strategy should be." Duncan blocked the question, ICP objected.

So it went. ICP asked more questions, none answered. Mr. Duncan asked if ICP wanted to present a statement. ICP did, about Associates (predatory practices), and Citifinancial (predatory practices); that there's no regulator looking at big picture, since there's no Fed applications after passage of the Gramm-Leach-Bliley Act; that the issues we raised and asked questions about were all (or nearly all) tied to the S.D. statute, and that Hurley State Bank is subprime too, the Commission should ask for a presentation about Hurley's rates.

Citigroup's Dave Zinbeck said (this after two hours) that it should be up to the Commission to ask for more information.

ICP asked that the hearing be continued (that is, held over to another day) to get more witnesses, that could describe Hurley's rates, and the due diligence Citigroup did or didn't do. Mr. Lillibridge denied that. ICP asked if all that Citi put into the record was a two page letter, the FDIC notice, and Mr. Rowenhorst's oral testimony. Yes, Duncan said [Note: to our knowledge, Citi has put more into the record that this: for example, two letters from Skadden dated October 9, maybe more). ICP asked that we be given five business days to submit proposed findings of fact and conclusions of law. This was granted.

That was South Dakota; other reports (concerning other states) will appear in this space next week, or before. Here is ICP's October 16 letter to the FDIC; a similar submission has gone in to the OCC.

October 16, 2000

Dear Regional Director Stum and others at the FDIC:

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 third timely comment opposing and requesting hearings on the notices of Citigroup, Inc. (along with its subsidiaries, including the subprime lender Citifinancial, "Citi") to acquire control of Associates First Capital Corporation and its subsidiaries ("Associates"), including two insured depository institutions supervised by the Federal Deposit Insurance Corporation (the "FDIC"), Hurley State Bank ("HSB") and Associates Capital Bank, Inc. ("ACB").

Since ICP's filed its 29-page initial comment with the FDIC on September 25, and since ICP filed its October 4, 2000 second comment with the FDIC, we have not received a copy of any response from Citigroup. Apparently, Citigroup does not contest the data and issues raised in the September 25 and October 4 Comments. ICP contends that Citigroup's failure to submit (and copy to ICP) a response to comments filed three weeks ago militates strongly for the FDIC now scheduling and holding a public meeting on this important and controversial transaction.

In its initial September 25, 2000 comments, ICP urged the FDIC to request and obtain a copy of the "Company Disclosure Schedule" referenced in the Merger Agreement, but apparently not submitted to the FDIC by Citigroup. ICP has now obtained the "Company Disclosure Schedule," and hereby timely enters into the record before the FDIC the following cases against The Associates:

Section 3.1(h)

Compliance with Applicable Laws; Litigation

(i)

Class Action in Philadelphia (Federal Court) related to Tami Stewart

Tami Stewart individual claim

Attorney Preferences Cases (South Carolina)

Bessette v. Avco; Barrett v. Avco (Rhode Island and Massachusetts)

Darden v AHES; Wood v. Associates (Georgia)

Echostar v. Associates (Colorado)

FRI Investigation -- the FTC, in conjunction with the Department of Justice, is continuing its investigation into the Company's lending practices

Garske v. Arcadia (California)

Gilliam v. Associates (Indiana) (Class Action)

Laura Martin v. Associates

Givens v. Associates (Minnesota)

Gomez v. Avco (California)

Henry v. AHES (Caolifornia)

Mississippi Litigation

North Carolina Attorney General Investigation

Nydia Estades v. AFSCI (Puerto Rico)

Amburn, et al. v. ACS (Tennessee)

Vogel v. AFSCI (Ohio)

Mims, et al. v. KFC (South Carolina)

Martinez v. TransSouth (Texas)

Crawford, Larry

Dayton

Drummond (Alabama)

H&T Mason Contractors

Lewis, Bertha

Private A.G. Inc. (Florida)

Turner, Denise (Oklahoma)

Privacy Class Actions (California)

Internet Gambling Class Actions (New Orleans and Dallas)

Shell Repricing Class Actions (North Carolina and California)

Bank of New York

Federal Trade Commission/Detroit Investigation of Ford Consumer Finance, Inc.

United States v. Associates National Bank: Department of Justice Delaware litigation

IRS Audit (see attachment)

(iii) and (v)

Federal Trade Commission/Detroit Investigation of Ford Consumer Finance, Inc.

FTC/Department of Justice Investigation

North Carolina Attorney General Investigation

United States v. Associates National Bank

We urge your agency to inquire into these cases (which were disclosed in an exhibit to the Merger Agreement that Citigroup unjustifiably omitted from its CBC Act notices to the FDIC, despite including it as part of its application to state insurance regulators, for example).

Furthermore, ICP hereby formally asks the FDIC to take action under 12 CFR 225.84(a). Associates National Bank, received a "Needs to Improve" CRA rating at its most recent examination. Citigroup's September 20, 2000 SEC Form S-4, despite its five page presentation of "Regulatory and Third Party Approvals," makes no mention of Associates National Bank's less than satisfactory CRA rating. Citigroup's S-4, in explaining the factors that its board of directors considered "in reaching its determination to approve the merger," does not mention ANB's less than satisfactory CRA rating, even among the six enumerated "adverse factors." The S-4 states that this list "is believe to include all material factors considered by the Citigroup board."

We note (and enter into the record before the FDIC) Dow Jones Newswire's article of September 26, 2000, "Group Using CRA Mandate to Fight Citi-Associates Pact," which reports that "[a]sked if the rating was seen as a potential legal barrier to the merger, a spokeswoman for Citigroup declined immediate comment."

For your information, and for the record, Citigroup has refused to answer basic questions about its proposal in other forums, as well. ICP commented to the South Dakota Division of Banks ("SDDB"), and was granted "full party" status for the SDDB's hearing on October 10, 2000, on Citigroup's application to acquire Hurley State Bank, which is subject to FDIC jurisdiction and review in this proceeding. On the night of October 9, via letter to the SDDB, and at the beginning of the hearing on October 10, Citigroup again attempted to contest ICP's party status. The SDDB upheld ICP's full party status, and right to cross examine at the hearing. See, e.g., "Citigroup's Purchase of Associates Challenged in State Hearing," Bloomberg, October 10, 2000.

Citigroup's lead witness, Eugene Rowenhorst, testified inter alia that Citigroup "has policies and procedures to address the issues raised by Inner City." On cross examination, I asked Citigroup to describe some -- any - of these "policy and procedures." The Citigroup witnesses refused, stating that they "stood" on their previous testimony: the mere words, "we have policies and procedures." Citigroup also refused to answer questions about the implications and effects of Associates National Bank's Needs to Improve CRA rating. An FDIC staff member, from the FDIC's Kansas City office, attended the SDDB hearing. We ask for a copy of this FDIC staffer's report and/or notes, and contend that Citigroup's refusal to answer basic questions, even under cross-examination, militates yet more strongly for the FDIC now scheduling and holding a public meeting on this controversial proposal.

Similarly, while a state insurance department has ruled that ICP has a right to conduct discovery (see, e.g., "Citigroup - Associates Opposed" (ICP Granted Discovery Rights), Bureau of National Affairs Banking Daily, October 11, 2000), Citigroup's lawyers have opposed providing any responses to ICP, and explicitly opposed answering a straight forward question about changes Citigroup would implement at the various Associates subsidiaries, including the banks under your agency's jurisdiction. Citigroup was directed to answer ICP's questions about its position on the implications and effects of Associates National Bank's Needs to Improve CRA rating, and why these were not disclosed in Citigroup's September 20, 2000, SEC Form S-4.

Citigroup's answers, dated October 14, 2000, and annexed hereto, remain evasive, stating (in response to ICP Question 12): "Even if, as suggested by the question, the GLB Act were to limit Citigroup's new activities following the merger to those permissible for a bank holding company...." and, in response to ICP Question 14, "The SEC Form S-4 was prepared by Citigroup, Associates and their respective legal advisors, all of whom have substantial experience with securities disclosure documents.... [I]t was determined this matter was not material to the combined company and therefore, no reference to the status of Associates National Bank (Delaware) was warranted or required with respect to the SEC Form S-4."

ICP contends that, particularly following enactment of the Gramm-Leach-Bliley Act of 1999, it is irresponsible (and more) for a financial holding company's board of directors to fail to consider, as a material factor, that an acquisition target has bank subsidiaries with a less than satisfactory CRA rating. It is irresponsible, to say the least, not to disclose, in the company's S-4 and otherwise, this less than satisfactory CRA rating and the possible implications of the rating under 12 U.S.C. 1843(l)(2).

Beyond the other evidence presented in Protestants' September 25 and October 4 submissions, the above-described failure to consider, and failure to disclose, are adverse factors on Citigroup's managerial resources, competence and integrity and otherwise on Citigroup's notice.

Also annexed hereto is a copy of a submission Citigroup has made to another state insurance department. In response to Question 8 ("Provide a list, and certified copies of all criminal, civil, regulatory and administrative actions(s) taken against applicant and/or applicant's ultimate controlling parent by any government body including actions outside the United States (within the last ten (10) years"), Citigroup states:

Response to Item 8

To the best of Citigroup's knowledge, aside from certain environmental issues, there have been no criminal, civil, regulatory or administrative actions taken against Applicant (Citigroup Inc.) by any governmental body including actions outside the United States within the last ten years. From time to time, Applicant has come within the regulatory scope of federal and state environmental agencies through its acquisition or merger of companies previously engaged in manufacturing activities. In the past, these environmental agencies have required Applicant to undertake certain actions and all such issues have been satisfactorily resolved. Additionally, the direct and indirect subsidiaries of the Applicant are in regulated businesses and as a result are subject to regulatory examinations and actions in the ordinary course of business by the banking regulators, Securities and Exchange Commission and the insurance departments of the various states. Governmental bodies are also customers, account holders and insureds of the subsidiaries of Application, which may be involved in disputes or litigation regarding terms and coverage in the ordinary course of business. To the best of our knowledge, there have been no criminal proceedings brought against any subsidiary of the Application while they were subsidiaries within the last 10 years. Information concerning major proceedings had been described in the periodic reports filed by Citigroup and its predecessors with the Securities and Exchange Commission. Citigroup's Annual Reports Form 10-K for the past two years are included with this Form A application.

ICP asks the FDIC to consider the validity of the above-quoted answer, that Citigroup has provided to the California Department of Insurance in connection with this proposal (Citigroup's proposal to acquire Associates First Capital and its subsidiaries).

To reiterate: we are requesting a further extension of the comment period; we are formally asking the FDIC to extend its review period, in light of the issues raised, and Citigroup's failure to address them; we are requesting a public hearing or meeting on the application; and we reiterate our timely request that the FDIC deny and disapprove the application.

If you have any questions, please immediately telephone the undersigned, at (718) 716-3540.

Very Truly Yours,

Matthew Lee
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
Tel: 718-716-3540
Fax: 718-716-3161

For or with more information, contact us.

Update of October 9, 2000: ICP's and many others' comments opposing Citigroup's applications to acquire The Associates have requested extensions of the comment period, and public hearings. On October 5, the Office of the Comptroller of the Currency and the FDIC announced that comments will now be accepted until October 18. Many observers had predicted that because the Community Reinvestment Act is not a statutory factor on these (Change in Bank Control) applications, the OCC and FDIC would do nothing before rubber-stamping them. Well, the agencies have yet to substantively do anything: but they did extend the comment periods. Sources report that within the OCC, the decision to extend the comment period was a compromise. Some staff members favored granting the requests for a public hearing. The OCC stated on its Web site that it has denied the hearing requests. The FDIC , in a letter to Citigroup's lawyer, said the comment period extension was based on "the number of comments received the date and the apparent public interest in the proposals." The word "apparent," of course, has two meanings: "seeming," and/or "obvious." We hope the obvious nature of the extensive opposition to Citigroup's applications is made clearer to the agencies, by October 18.

In Texas, where Associates is based, the Fort Worth Star-Telegram ran a detailed article on the issues raised against Citi - Associates. Associates refused to comment, directing all questions to Citigroup's main flack, Leah Johnson. Who prattled on about how Citigroup "fixed" Primerica -- a claim heatedly disputed by insurance industry experts in the U.S., Canada and elsewhere.

Citigroup officials have been on something of a road trip, trying to placate some organizations, or at least use up their time. Appearances have been made in D.C. (where Citi proudly claims to have met with officials of the FDIC and Office of Thrift Supervision), calls have been made to the West and Midwest; the Southeast will be receiving a delegation in the near future. What has become clear is that Citigroup is not prepared to renounce ANY of Associates First Capital's practices, notwithstanding Leah Johnson's allusions to Citigroup's previous compliance fixes. It is reported that Citifinancial allows fees up to nine percent, on loans it buys through brokers, and that Citigroup intends to retain Associates' extensive use of pre-payment penalties, and prepaid credit life insurance.

In the near future, we will report results (including "discovery" results) from state proceedings. For now, below are portions of a letter ICP has filed with the Securities and Exchange Commission, concerning Citigroup's failure to disclose (or apparently to even consider) the legal effects of acquiring Associates and its bank with a rare Needs to Improve Community Reinvestment Act rating, Associates National Bank. The agency that would (and should) step forward to enforce the CRA provisions of the 1999 Financial Modernization Law, the Federal Reserve, last week granted Citigroup an additional year to bring itself into compliance with law -- this close relation between Citigroup and the Fed is one of the reasons ICP has had to comment to the SEC, and to "the many states." Here's the text of ICP's letter to the SEC:

....Inner City Press/Community on the Move ("ICP") is opposed to Citigroup's proposal, announced on September 6, 2000, to acquire Associates First Capital Corporation ("Associates"), on predatory lending, community reinvestment and other grounds. For that reason, we have reviewed Citigroup's notice to the Office of the Comptroller of the Currency (the "OCC") to acquire Associates' subsidiary, Associates National Bank ("ANB"), and the S-4 Citigroup filed on September 20, 2000. There is a discrepancy, a failure to disclose, that we have noticed, and wish to bring to the SEC's attention, for action.

Associates National Bank has a rare "Needs to Improve" rating under the Community Reinvestment Act of 1977 (the "CRA;" 12 U.S.C. Sec. 2901, et seq.). The rating is rare, in fact less than two percent of banks are rated less than satisfactory under the CRA. The Financial Modernization Act of 1999 (alternately known at the Gramm-Leach-Bliley Act) contained a provision that limited "new powers" to holding companies whose bank subsidiaries are rated satisfactory or better under the CRA. The relevant section has been codified at 12 U.S.C. 1843(l)(2). It appears that if Citigroup acquired Associates National Bank, as is proposed, it would be required to immediately cease a number of its business activities, desist from commencing these activities or acquiring companies engaged in these activities.

Citigroup's S-4, filed on September 20, 2000, neither discloses nor discusses this issue. The S-4 at 19-21 purports to disclose "all material factors considered by the Citigroup board." S-4 at 21. These factors include "the recent enactment by the Japanese government of legislation which reduced the maximum allowable rate for new unsecured loans and borrowing from 40.0% to 29.2%" and "uncertainty regarding employees' perceptions of the merger" -- but nothing about how Associates National Bank's rare Needs to Improve CRA rating, under the Financial Modernization Act of 1999, could constrain Citigroup's activities if this acquisition is consummated.

Attached to the S-4 is a copy of the Merger Agreement, dated September 5, 2000. The Merger Agreement provides, in Article III ("Representations and Warranties"), Section 3.1(h)(iv), that, with certain exceptions, Associates has represented and warranted that each of its "insured depository institution subsidiaries'... examination rate under the Community Reinvestment Act of 1977 is satisfactory or outstanding." Again, Associates National Bank has a "Needs to Improve" CRA rating. One of the exceptions to this explicit warranty is "[e]xcept... as set forth on the Disclosure Schedule delivered by [The Associates] to [Citigroup] prior to the execution of this Agreement...". Merger Agreement at Art. III, Sec. 3.1. But it does not appear that Citigroup has filed, with the SEC (or the OCC) any copy of this Disclosure Schedule. There is the appearance of disclosure (a lengthy Merger Agreement, a three page discussion of factors considered by the Citigroup board), but a material issue -- the constraints that would apparently be put on Citigroup's business, in light of ANB's Needs to Improve CRA rating -- is not disclosed.

This letter asks the SEC to: (1) direct Citigroup to file a new S-4; (2) direct Citigroup to file with the SEC the above-referenced "Disclosure Schedule", (3) inquire into the facts and circumstances behind Citigroup's lack of disclosure to date; and (4) take other appropriate action.

We also ask that you keep us informed of SEC actions take in this regard. If you have any questions, please telephone the undersigned, at ICP's office. Thank you for your attention.

Very Truly Yours,

Matthew Lee
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
Tel: 718-716-3540
Fax: 718-716-3161

The OCC's and FDIC's comment periods now extends to October 18, 2000. We'll be filing a supplemental comment, with new evidence that has come our way. For or with more information, contact us.

COMMUNITY ON THE MOVE AND THE INNER CITY PUBLIC INTEREST LAW CENTER IN OPPOSITION TO THE NOTICES OF CITIGROUP, INC. TO ACQUIRE CONTROL OF ASSOCIATES FIRST CAPITAL CORPORATION AND OF ITS SUBSIDIARIES, INCLUDING ASSOCIATIES NATIONAL BANK, HURLEY STATE BANK AND ASSOCIATES CAPITAL BANK, INC.

SEPTEMBER 25, 2000

PRELIMINARY STATEMENT

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 comment opposing and requesting hearings on the notices of Citigroup, Inc. (along with its subsidiaries, including the subprime lender Citifinancial, "Citi") to acquire control of Associates First Capital Corporation and its subsidiaries ("Associates"), including two insured depository institutions supervised by the Federal Deposit Insurance Corporation (the "FDIC"), Hurley State Bank ("HSB") and Associates Capital Bank, Inc. ("ACB") [and Associates National Bank, supervised by the Office of the Comptroller of the Currency (the "OCC")].

Citigroup, a conglomerate already involved in questionable subprime (high interest rate) lending, here applies to acquire control of another questionable subprime lending conglomerate, Associates, and of its two FDIC-supervised banks. This comment demonstrates why, under the factors set forth in 12 U.S.C. Sec. 1817(j) (including the "competence, experience, integrity and financial ability" of the applicants), these notices must be denied.

Section II of the Comment demonstrates that Citigroup's normal interest rate lenders disproportionately deny and exclude people of color, while Associates' subprime lenders target people of color for loan at high interest rates, with single premium credit insurance, balloon payments, mandatory arbitration clauses, and punitive prepayment penalties (a virtual definition of predatory lending). Section III reviews Citigroup's lending record in its headquarters city (as a matter of "integrity," and as a rebuttal to the argument that allowing Citigroup to acquire The Associates would improve The Associates' practices).

Section IV reviews Citigroup's failure to improve the practices of the subprime lenders Source One, IMC and Commercial Credit, now known as Citifinancial, including description of some sample outstanding litigation against Citifinancial, and it extensive use of single premium credit insurance. Section V argues that Citigroup's "integrity" is called into question by its standardless involvement in subprime and predatory lending, through its investment bank, Salomon Smith Barney ("SSB"), which does underwriting and otherwise enables predatory lenders across the United States, as well as by numerous other standardless business relationships outlined infra in Section VII.

The implications and effects of the current "Needs to Improve" Community Reinvestment Act ("CRA") rating of another of Associates' insured subsidiaries, Associates National Bank, under the section of the Gramm-Leach-Bliley Act codified at 12 U.S.C. 1843(l)(2), and under Article III, Sec. 3.1(h)(iv) of the Merger Agreement, are timely put into the record before the FDIC in Section VI, infra, of this Comment...

Citigroup's (virtually identical) notices to the FDIC, at 3, acknowledge that "legitimate questions have been asked by regulators, community groups and the media in the past regarding Associates." For the record, ICP's review of The Associates' practices have led it to go beyond asking questions, to demanding action: see, e.g., "Activist Group Targets Ford Unit, Calling Its Card Rates Excessive," American Banker, January 27, 1997, at 1; "Ford Unit on Defensive Once Again Over Its Payments to Loan Brokers," American Banker, January 29, 1997, at 1; "OTS Suspends Associates' Application," National Mortgage News, February 16, 1998. During the OCC's processing of the Associates National Bank's credit card acquisition applications that ICP challenged in January 1997, the OCC found reason to believe that a substantive violation of anti-discrimination laws had occurred at ANB. More recently, Associates is under active investigation by the Department of Justice and FTC for discrimination. So Citigroup's notice's acknowledgement that "legitimate questions" have been asked is the least it could make.

But the substantive portion of the notices, each a mere 12 pages in length, does not even purport to list, much less address or respond to, these "legitimate questions... regarding Associates." As such, the notices are incomplete and defective. See 12 U.S.C. Sec. 1817(j)(7)(E). Furthermore, Citigroup has inappropriately requested confidential treatment of "[a] schedule of the board of directors and the senior executive officers" of each bank. Notices at 8. There is no basis for withholding such information, particularly about an institution about which Citigroup acknowledges "legitimate questions" have been raised. ICP will be appealing the FDIC's partial response to ICP's September 15, 2000 Freedom of Information Act ("FOIA") request, and is requesting an extension of the public comment period on these grounds.

We now turn to an analysis, in numerous Metropolitan Statistical Areas ("MSA"), of the disparities and presumptive fair lending violations of a Citigroup / Associates combination. The FDIC has a duty, under the Change In Bank Control Act's (the "CBC Act's") "integrity" and other standards, to inquire into and act on all of the issues raised below.

II. WHILE CITICORP MORTGAGE DISPROPORTIONATELY DENIES AND EXCLUDES PEOPLE OF COLOR FROM NORMAL RATE CREDIT, THE ASSOCIATES TARGETS PEOPLE OF COLOR FOR HIGH COST LOANS WITH PREDATORY FEATURES

Most of the worst predatory lending practices take place in the refinance mortgage and home equity loan markets. ICP's analysis comparing the refinance mortgage lending of Citigroup's normal interest lenders, its banks and Citicorp Mortgage (at times, "CM"), and of Associates Financial Services (at times, "AFS"), a high interest rate, "subprime" lender, finds that CM disproportionately excludes people of color for its (normal interest rate) lending, while AFS targets people of color with high-cost, predatory loans. Following this quantitative analysis is a review, including pending class actions and governmental investigations of discrimination, of The Associates practices, which ICP contends are predatory.

But first the numbers: in the Buffalo NY MSA in 1999, Citicorp Mortgage made 61 refinance loans to whites, and only two to African Americans, a ratio of 30.5 to one. Citigroup's FDIC-supervised state non-member bank, Citibank (New York State), in this MSA in 1999 made 109 refinance loans to whites, and only four to African Americans, a ratio of 27.25 to one. Citibank (NYS) denied the applications of African Americans more than three more frequently than those of whites -- essentially driving the disproportionately denied African Americans to higher-cost lenders, including one that Citigroup now proposes to buy. Associates Financial Services, on the other hand, in Buffalo in 1999 made 85 refinance loans to whites, and 31 to African Americans -- a ratio of 2.74 to one. The subprime lender that Citigroup seeks to acquire is more than eleven times more likely to target African Americans with its high cost loans than is Citicorp Mortgage, and is over nine time more likely to target African Americans with its high cost loans than is Citigroup's FDIC-supervised depository institution, Citibank (NYS), with normal interest rate loans.[snip - contact ICP for more recent data]

As demonstrated throughout this Comment (including in Sections III and IV, infra, dealing with Citibank, N.A. and Citifinancial, respectively), Citigroup is a two-tier financial conglomerate, operating under the old adage / analysis, "The poor [and people of color] pay more." These notices must be denied.

By income, consider the following, perhaps of particular interest on these notices: in the Sioux Falls, South Dakota MSA in 1999, Associates Financial Services made none of its high cost refinance loans to people with incomes over the MSA median income; all of its high cost loans were to people below median income (36.8% of the loans to people with income below 50% of MSA median). While Citigroup has a Community Reinvestment Act duty in Sioux Falls, Citicorp Mortgage did not report any refinance loans in this MSA in 1999. In the Salt Lake City MSA in 1999, Citicorp Mortgage made nine refinance loans to applicants with incomes 120% or more of MSA median, and none to borrowers with incomes 50% of less of MSA median. Meanwhile, Associates Financial Services in Salt Lake City made 29 refinance loans to applicants with incomes 120% or more of MSA median, and many more (62) of its high rate loans to borrowers with incomes 50% of less of MSA median. The disparate targeting with high rate loans extended to people of color as well: while Citicorp Mortgage made 13 refinance loans to whites, one to a Latino, and none to African Americans or Native Americans in Salt Lake City in 1999, Associate Finance Services, with high cost loans, made 194 loans to whites, 30 to Latinos, six to African Americans, and five to Native Americans. This targeting with high cost loans is both discriminatory and predatory; this merger should not be approved.

Beyond Associates' clear targeting of people of color with high cost loans (see data above; for Citifinancial, see infra Section IV), The Associates is one of the lenders most often deemed "predatory" by consumer and community advocates. Some examples: in the state of Georgia, The Associates has been putting credit life insurance on loans in apparent violation of state law (which limits this type of insurance to loans shorter than ten years). Georgia Insurance Commissioner John Oxendine in October 1999 issued a cease and desist order against The Associates; two class actions are pending, one already certified. And see case files annexed hereto.

Consumer attorneys have informed ICP that it is Associates' practice to put balloon payments (as high as $48,000) in initial loans, and then call the borrowers a few months later, pointing out this disadvantageous feature, and offering to refinance the loans (for $10,000 in points, of course). Similarly, The Associates has been drumming up refinance (that is, flipping) business among its customers, with the main goal of adding mandatory arbitration clauses.

The public record is replete with other examples of Associates' predatory practices. See, e.g., "Loan Sharks, Inc.: High-Interest Rate Loans Are Soaking the Poor From the South Bronx to California -- And Wall Street Can't Get Enough," Village Voice, July 15, 1997, at 33 (reporting inter alia Associates' practice of loan flipping, in Brooklyn, New York and elsewhere); [string cite omitted] and "Company Says It Will Battle Any Bias Lawsuit," by Jim Fuquay, Fort Worth Star Telegram, June 23, 2000, which concerns the Department of Justice's and FTC's active investigation of The Associates for racial discrimination. While ICP, along with other commenters, contends that the FDIC could not legitimately approve these notices with the DOJ investigation outstanding (the Federal Reserve Board, for example, refused to approve a Shawmut Bank application in New Hampshire, while an DOJ investigation was pending), ICP wishes to emphasize that the problems at the Associates go well beyond the DOJ and FTC investigations. For example, the FDIC should inquire into the above-described Georgia class actions, and other of Associates' practices. Furthermore, while ICP's data analysis has focused on Associates Financial Services, the FDIC must inquire into the practices of all others Associates subsidiaries, including The Associates (TX), Associates First Capital Mortgage (TX), Associates Mortgage Group, Inc. (KY), Kentucky Finance Company, TranSouth Financial Corporation, First Family Financial Services, Associates' subprime auto lending business (including that acquired with Arcadia Financial),[FN: And even The Associates questionable lending practices in Japan: see, e.g., Wall Street Journal of June 17, 1999, by Jathon Sapsford. Citigroup has said that Associates' profitable non-U.S. high interest rate lending is one of the reasons it wants to buy The Associates] and Associates Home Equity Service (TX). [FN: In 1999, all of Associates' HMDA reporters cumulated also clearly targeted people of color with their high cost loans, making 14 percent of its high interest rate 1-4 family home loans to African Americans, versus a nationwide industry aggregate figure of six percent]. This notice could not legitimately be approved.

III. CITIGROUP'S LENDING IS DISPARATE, EVEN WHERE IT HAS A COMMUNITY REINVESTMENT ACT DUTY; THERE IS NO BASIS TO CONCLUDE THAT ITS ACQUISITION OF ASSOCIATES WOULD RESULT IN ANY NET PUBLIC BENEFIT

While this notice is technically not subject to the Community Reinvestment Act, clearly Citigroup's record of fair lending is relevant to the assessment of the "integrity," "experience" and "competence" factors that the FDIC must consider. Citigroup's notices, at 4 and 12, acknowledge as much (and, as a matter of law, "opens the door" to this issue). Furthermore, Citigroup explicitly makes the argument that allowing it to acquire the Associates (which already settled one Department of Justice discriminatory lending claim, based on an OCC referral, and is under investigation for discrimination by DOJ in yet another line of business) would be positive, in light of Citigroup's claimed record of "expanding alternatives for consumers, increasing the quality of products offered and adhering to high standards for sales practices." Notices at 4.

ICP, and the public record, dispute each of these claims. See, e.g., "Citibank's Quiet Branch Closings And Switch to ATMs Stir Outrage," American Banker, February 12, 1996; "Pols Fight Citibank's Plan to Exit," N.Y. Daily News, February 1, 1996; "Bank Won't Give in On Closings," N.Y. Daily News, January 24, 1996. Citigroup's banks have closed numerous branches in low- and moderate-income areas, and communities of color; Citigroup in the most recent year for which HMDA data is available disproportionately denied and excluded people of color from its normal interest rate credit products.

In 1999, in the New York City MSA, Citicorp Mortgage for 1236 conventional home purchase loans to whites, and only 56 such loans to African Americans, and only 58 to Latinos. Meanwhile, Citicorp Mortgage denied 14.9% of applications from African Americans, versus a 4.5% denial rate for whites. Citicorp Mortgage denies African Americans 3.31 times more frequently than whites (other lenders in New York deny African Americans 2.0 times more frequently than whites).

Adding Citicorp Mortgage and Citibank, N.A. together, Citigroup is still worse than other lenders in the market. The industry aggregate in the NYC MSA in 1999 made 5385 conventional home purchase loans to African Americans, 4841 to Latinos, and 36,467 to whites. Among these three groups, 11.5% of the industry aggregates loans were to African Americans, and 10.4% to Latinos. The figures for Citicorp Mortgage added with Citibank, N.A. are only 7.0% percent of loans to African Americans, 8.0% to Latinos: both less than the industry aggregate. Meanwhile Citigroup denied African Americans three times more frequently than whites, versus the industry aggregates two-to-one disparity. [snip - contact ICP for more recent data]

Citigroup is already a disparate lender; allowing it to acquire a large and troubled subprime lender, which disproportionately targets people of color for high interest rate loans, is not in the public interest.

IV. CITIGROUP DID NOT IMPROVE COMMERCIAL CREDIT'S (OR IMC'S OR SOURCE ONE'S) PRACTICES; THERE IS NO BASIS TO CONCLUDE THAT ITS ACQUISITION OF ASSOCIATES WOULD RESULT IN IMPROVEMENTS AT THE ASSOCIATES

In 1997, when Travelers applied to the Office of Thrift Supervision ("OTS") for a savings bank charter, ICP and the Delaware Community Reinvestment Action Council ("DCRAC") commented, to the OTS and to the New York State Banking Department ("NYSBD"), that Travelers' Commercial Credit units were presumptively violating the Home Mortgage Disclosure Act, inter alia by refusing to request, record and report data on the race and gender of applicants, and by reporting less-than-credible approval percentages, as high as 100%. See, e.g., "Travelers Unit's Loan Record Hit," National Underwriter, June 23, 1997; see also American Banker of June 13, 1997, at 3.

After several months of comments and response, Travelers acknowledged to the NYSBD that it had been violating HMDA. In itself, this shows a problematic compliance culture at Commercial Credit (now Citifinancial) and Travelers (now Citigroup). But ICP is troubled to note that Citifinancial's 1999 HMDA data reflects the same high levels of "Race Not Available" notations for loan applicants, and, in instance, the same less-than-credible 100% approval rate.

For example, Citifinancial Company (DE), in the Pittsburgh MSA in 1999 reported Race Not Available" for 667 refinance applications, while reporting race for only 63 applications from whites, and only seven from African Americans -- and reported ALL of these applications as having resulted in originations. This is a presumptive -- and continuing -- violation of the Home Mortgage Disclosure Act, the Congressional purpose of which is to allow the public and the regulators to assess mortgage lenders' compliance with anti-discrimination laws. This notice should not be approved.

In the Long Island, NY MSA in 1999, Citifinancial Company (DE) reported "Race Not Available" for 115 refinance applicants, while reporting race for only nine applications from whites, and only five from African Americans. The applications for which race IS disclosed appear to indicate a targeting of people of color for high interest rate credit (see the analysis in Section II, supra, and see the aggregate industry's demographics of refinance lending on Long Island in 1999). If Travelers / Citigroup's combative responses in the 1997 OTS and NYSBD and 1998 proceedings is any guide, Citigroup is likely to respond that a demographic analysis of Citifinancial's lending fails, because race is reported on so few of Citifinancial's loans. But violating HMDA should not allow an institution to evade scrutiny under (or compliance with) the fair lending laws. The FDIC should review Citifinancial's existing HMDA data by the racial make-up of the census tracts in which it is done, should require Citifinancial to begin complying with HMDA (and impose penalties), and should deny this notice.

In the Buffalo, NY MSA in 1999, Citifinancial Company (DE) reported "Race Not Available" for 70 refinance applicants, while reporting race for only 12 applications from whites, and only three from African Americans. High "Race Not Available" percentages are reported by Citifinancial in dozens of other MSAs, including (by Citifinancial Company (DE)) in New York City, and Rochester and Albany, NY. Citifinancial Services, Inc. (MD) similarly evades HMDA in dozens of MSA, including Philadelphia; Citifinancial Inc. (MD) does so in Detroit, New Orleans, Phoenix, Washington and Wilmington, Delaware (where, for the origination for which race IS reported, the company made more of its high rate loans to African Americans than to whites; see fair lending analysis, supra). These notices should not be approved.

Citigroup may attempt to argue that its subprime Citifinancial units report a high percentage of applications as "Race Not Available" because they take most applications by telephone. But (1) not all Citifinancial units have such high "Race Not Available" percentages (see, e.g., Citifinancial Mortgage Co. (MD), which in the Chicago MSA in 1999 reported seven conventional home purchase loan applications from African Americans, two from whites, and only three as "Race Not Available;" see also the fair lending analysis in this Section). Also note that among the "irregularities" in the Commercial Credit HMDA data that ICP commented on in 1997 were applications that Commercial Credit claimed were "by phone," but turned out to have been through Smith Barney broker (that is, "face to face," at an affiliate). As Citigroup's number of affiliations has only increased since then, ICP directs the FDIC to inquire into the basis, or lack thereof, for Citifinancial's unprecedentedly high percentage of "Race Not Reported" applications -- with particular reference to Primerica/PFS, whose representatives take applications on a face-to-face basis. There is no basis to believe that Citigroup would improve The Associates, since Citigroup has not improved Commercial Credit / Citifinancial.

In 1998, when Travelers applied to various regulatory agencies to acquire Citicorp and its subsidiaries, ICP and DCRAC commented to, inter alia, the Delaware insurance regulator. As a formal hearing held in Dover, Delaware, senior officers of Travelers (and now Citigroup) heard specific, sworn testimony about problematic loans (including flipping) done by Commercial Credit. No action, to ICP's knowledge, was ever taken by Citigroup on this testimony. And see annexed case files.

Note also that, despite the issues having been raised for years -- including by ICP, on Citibank, N.A.'s applications to the OCC to acquire the mortgage (including subprime) lender Source One, see OCC's letter to ICP dated November 1, 1999 -- Citigroup has yet to implement a "referral up" system whereby applicants who access Citigroup via a "subprime channel" (Citifinancial, or, as is proposed, The Associates) will be offered normal interest rate loans, if their credit histories make them eligible for such. Since Citigroup's normal interest rate lenders, including Citigroup's bank branches, are disproportionately in affluent, non-minority communities, and given the geographic and demographic pattern of Citifinancial's (and the Associates') branch offices, this failure to implement the most basic fair lending safeguard portends further fair lending violations at Citigroup. Issues also exist as to IMC, which Citigroup acquired following having made large warehouse and other loans to IMC. For example, consumer attorneys in Chicago allege (and document) that IMC is violating the Illinois Interest Act, on the issue of points charged. Citigroup's failure to act disproves the claim that Citigroup would improve The Associates, since Citigroup has not improved Commercial Credit, IMC, Source One or Citifinancial.

V. CITIGROUP'S SALOMON SMITH BARNEY IS ALSO INVOLVED IN PREDATORY LENDING

Citigroup, through its investment bank Salomon Smith Barney, is also deeply involved in questionable subprime lending. For example, in 1998 Salomon Brothers Realty Corp. provided warehouse lines of credit of $775 million to subprime lender New Century Mortgage Corporation ("New Century"), requiring New Century either to securitize $1 billion of loans through Salomon Smith Barney as sole underwriter, or, in the alternative, to sell $1 billion in loans to Salomon Brothers Mortgage Securities VII for their own securitization.

To document for this proceeding that the subprime lender New Century disproportionately targets its high interest rate loans at people of color, consider its refinance lending record in the following MSAs, compared with the aggregate's refinance lending record:

In the Philadelphia MSA in 1999, New Century made 134 refinance loans to whites, and 61 to African Americans, a ratio of 2.2 to one. The aggregate industry made 42,476 refinance loans to whites in this MSA, and 5301 to African Americans, a ratio of 8.01 to one. New Century is over 3.5 times more likely to target its (high interest) refinance loans to African Americans in this MSA than is the industry aggregate, with its (admittedly blended interest rate) loans. [snip - contact ICP for more recent data]

In 1999, Salomon Brothers Realty Corp. provided a $100 million repurchase line of credit to Long Beach Mortgage -- a subprime lender that was sued by the Department of Justice of race discrimination and pricing disparity grounds.

Salomon Smith Barney was the underwriter for the subprime mortgage backed securities issuances Centex Home Equity 1999-4 and 2000-A, and well as Ameriquest Mortgage Securities 2000-1.

To document for the record that the Citigroup/SSB-underwritten subprime lender Ameriquest disproportionately targets protected classes with its (Citigroup-enabled) high-interest rate loans, consider Ameriquest Mortgage Co.’s refinance mortgage lending in the New York City MSA in 1998: 371 loans to African Americans, 214 loans to whites, a ratio of 1.73 to one. The aggregate industry in this MSA in 1998 had a ratio of 0.240 to one. In the NYC MSA, SSB-underwritten Ameriquest targets African-Americans 7.21 times more frequently than the aggregate with its high interest rate refinance loans.

In the Buffalo, New York MSA, SSB-underwritten Ameriquest targets African-Americans 10.9 times more frequently than the aggregate with its high interest rate refinance loans. In the Cincinnati MSA, SSB-underwritten Ameriquest targets African-Americans 6.47 times more frequently than the aggregate with its high interest rate refinance loans. In the Cleveland MSA, SSB-underwritten Ameriquest targets African-Americans 7.44 times more frequently than the aggregate with its high interest rate refinance loans. In the Birmingham, Alabama MSA, SSB-underwritten Ameriquest targets African-Americans 6.25 times more frequently than the aggregate with its high interest rate refinance loans. And in the Wilmington, Delaware MSA, SSB-underwritten Ameriquest targets African-Americans 6.9 times more frequently than the aggregate with its high interest rate refinance loans.

What standards do SSB and Citigroup have for working with subprime lenders? Apparently none.

Salomon Smith Barney is identified as sole underwriter for Citifinancial Mortgage Securities in a registration statement filed with the SEC in March 2000 for future securitization of subprime mortgage.

In light of Citigroup's September 6, 2000, announcement that it seeks to buy The Associates, as well as Associates' earlier announcement that it will begin to securitize most of its (subprime) loans (see Asset-Backed Alert of June 20, 2000, reporting inter alia that SSB managed a $1 billion securitization of Associates' subprime credit card portfolio earlier this year), Salomon Smith Barney is the prospective logical underwriter for securitization of The Associates' subprime loans. For evidence that The Associates subprime loans are disproportionately targeted at people of color, see Section II, supra. These notices should be denied.

VI. FORMAL REQUEST FOR THE FDIC TO TAKE ACTION / MAKE REFERRAL UNDER THE CRA PROVISIONS OF THE GRAMM-LEACH-BLILEY ACT, IN LIGHT OF ANB'S NEEDS TO IMPROVE CRA RATING

As the FDIC should be aware, Associates National Bank received a "Needs to Improve" CRA rating at its most recent examination by the OCC. ICP directs the FDIC [and, separately, the OCC and Federal Reserve], to the provision of the Gramm-Leach-Bliley Act of 1999 whichis codified at 12 U.S.C. 1843(l)(2).... ICP contends that, if Citigroup acquires Associates National Bank, as here proposed, it must immediately cease a number of its business activities, desist from commencing these activities or acquiring companies engaged in these activities. While ICP and the DCRAC have raised this issue to the OCC, ICP hereby formally asks the FDIC to consider this issue, and ensure that illegal activities are not permitted, at Citibank (NYS) and otherwise.

We further note that the Merger Agreement (Exhibit 1 to the Notice) provides, in Article III ("Representations and Warranties"), Section 3.1(h)(iv), with certain exceptions, Associates has represented and warranted that each of its "insured depository institution subsidiaries'... examination rate under the Community Reinvestment Act of 1977 is satisfactory or outstanding." Associates National Bank has a "Needs to Improve" CRA rating. One of the exceptions to this explicit warranty is "[e]xcept... as set forth on the Disclosure Schedule delivered by [The Associates] to [Citigroup] prior to the execution of this Agreement...". Merger Agreement at Art. III, Sec. 3.1. ICP has not found, in the Public Exhibits to the notices, any copy of this Disclosure Schedule. Given the importance of this issue, ICP contends that the notices are incomplete and defective. See 12 U.S.C. Sec. 1817(j)(7)(E). Citigroup has essentially (mis-) requested confidential treatment for this Disclosure Schedule, by not submitting it. ICP will be appealing the FDIC's partial response to ICP's September 15, 2000 Freedom of Information Act ("FOIA") request, and is requesting an extension of the public comment period (and, more substantively, the denial of the notice) on these grounds.

VII. CITIGROUP RUN AFOUL OF THE "INTEGRITY" FACTOR IN NUMEROUS OTHER WAYS, INCLUDING WHICH THE OCC MUST INQUIRE, UNDER 12 U.S.C. SEC. 1817(j)

The explicit "integrity" factor of the Change in Bank Control Act (the "CBC Act") differentiates it from the Bank Merger Act, or the Bank Holding Company Act. The FDIC is required, in connection with these notices, to consider, inquire into, and act on all evidence that goes to this "integrity" statutory factor. In this light, ICP presents the following:

The Chicago Board of Options Exchange and the SEC are conducting an investigation into suspicious trading in Associates options (trades done through Citigroup's SSB), just prior to the announcement of the underlying $30 billion merger. See, e.g., Chicago Tribune, September 12, 2000. Until this matter is publicly resolved (as with the DOJ and FTC investigation of The Associates), the FDIC could not legitimately approve this notice.

Citigroup recently settled charges that it routinely imposed late payment penalties on its credit card holders, even when their payments arrived on time. See, e.g., Los Angeles Times, August 4, 2000.

Citigroup's involvement in money laundering, including for the brother of ex-Mexican president Salinas, is an adverse factor under the "integrity" (and potentially the financial) standards that the OCC must consider in connection with this notice. See, e.g., Money Laundering Alert, January 2000.

As matters concerning (and injuring) the public interest, consider that Citigroup is extensively involved in standardless "resource extraction," much of it environmentally destructive, through such units as Citicorp Ventures Philippines, Inc., Citicorp Petrolease, Inc., Phibro Energy Production, and Phibro Commodities. Citigroup's SSB has served as advisor and done underwriting for problematic projects like the Three Gorges dam in China, for the World Bank and controversial projects like the proposed Chad - Cameroon oil pipeline, and for various genetic engineering firms... Citigroup's SSB has acted as lead underwriter, not only for presumptively predatory mortgage loans, but also for Wackenhut Corrections Corp.'s initial public offering of the private prison-based REIT, Correctional Properties Trust. Giving increasing public awareness of, and opposition to, such practices, Citigroup's involvement must be considered in connection with the notice, under not only the "integrity" factor, but also (prospectively), the "financial ability" factor.

VIII. CONCLUSION

For the reasons set forth above, the FDIC should schedule and hold a public hearing on these notices, and, on the current record, the FDIC must deny the notices.

Respectfully submitted,

Matthew Lee, Esq.
Executive Director
Inner City Public Interest Law Center
& Inner City Press/Community on the Move
Tel: 718-716-3540
Fax: 718-716-3161

NOTE: This page will be updated, when we receive the information that Citigroup is seeking to withhold, in the face of Freedom of Information requests from ICP and others, and Citigroup's responses to the regulatory agencies. For or with more information, contact us.

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