|CitiGroup Inc. agreed to pay as much as $20 million in refunds to an estimated 9,000 borrowers to settle an investigation by the North Carolina attorney general into allegedly deceptive practices at Associates First Capital Corp., according to a story today in the interactive edition of the Wall Street Journal (WSJ.com). The settlement is one of the largest paid over allegations of predatory lending. At issue in this case is the "packing" of single premium credit life insurance on loans without the borrowers' knowledge.
CitiGroup bought Associates First Capital Corp. late last year and has been dealing with predatory lending issues since. Last week, CitiGroup reportedly suspended business with more than 3,600 subprime mortgage brokers -- far more than previously announced -- as part of continuing internal reforms prompted by last year's acquisition of Associates First Capital Corp. In June CitiGroup was reported to have stopped 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.
While CitiGroup has been fighting the predatory lending battle, the company reported in July that income from its CitiFinancial unit rose 40% to $286 million from the same period last year. The increase was attributed to substantial cost savings from the Associates integration, as well as a thirteen percent receivables growth and a lower cost of funds. According to the announcement, integration cost savings were running well ahead of targets.
"We are pleased to resolve the North Carolina attorney general's concerns regarding lending practices of the Associates that occurred prior to its acquisition by CitiGroup and before its operations were managed by CitiFinancial," CitiGroup reportedly said in a statement.
|WSJ.com went on to say that the settlement doesn't affect a separate federal action brought in March by the Federal Trade Commission against CitiGroup, Associates and CitiFinancial. In that case, filed in federal court in Atlanta, the FTC alleges that Associates engaged in lending abuses, including deceiving clients to get them to refinance debt with home loans that carry high interest rates, costs and fees.