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Canceled Policy

CitiFinancial to stop selling Single Premium Life

June 29, 2001


One activity usually connected with predatory lending is the sale of single premium credit life insurance. By financing the premium into the mortgage, lenders -- usually high-rate finance companies -- are able earn their high rates on the premium itself. Some consumer advocates have suggested that borrowers could find substantially less expensive alternatives with a traditional insurance companies.

Companies like the former Associates First Capital Corp. earned substantial income from this profitable ancillary product. However, the company that purchased the Associates -- Citigroup Inc. (NYSE: C news) -- is now ridding itself of the controversial insurance. The Wall Street Journal interactive edition yesterday reported that Citigroup Inc.'s CitiFinancial unit will stop selling single premium credit insurance on mortgage loans, following a controversy that customers could lose their homes or not build equity on those homes because of the terms of the insurance.

"Few products in our industry have been the subject of more attention and focus," the company's Consumer Group Chairman and Chief Executive Robert B. Willumstad was quoted as saying in a letter to CitiFinancial employees. "Primarily, critics claims that when tied to a mortgage, this product can lead to the loss of a home."

The story went on to say that Citigroup said it is too early to determine what the financial impact will be, but it doesn't believe it will be material. The company also doesn't expect any layoffs from the decision and plans to offer its existing mortgage customers monthly pay credit insurance, which will be available on new mortgage loans later this year.

Shares of Citigroup closed yesterday at $52.60, up $0.90.

Sam Garcia has been in mortgage lending since 1980, and is managing editor of MortgageDaily.com. He also owns and operates CloseNow.com, a real estate portal site.

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