Watching the Citi
Citigroup Watch, a project of Inner City Press (ICP) – a consumer watchdog organization, has reported on a $70 million civil penalty by the Federal Reserve against Citigroup and its consumer credit subsidiary, CitiFinancial Credit. According to the Baltimore Sun, the penalty was for "an array of violations of fair-lending practice laws" including "steering customers into high-cost, risky mortgage loans, misleading federal bank examiners and forcing some credit-insurance applicants to have a co-signer so the company could boost joint insurance sales."

Industry analysts took a rather blase attitude toward the Fed-imposed penalty. One analyst was quoted by the Sun as saying "Stuff like this is going to happen." Another analyst was quoted as remarking that "regulatory actions and fines have become a cost of doing business in the sub-prime lending market" and that "I don't see how the business is ever going to stop getting these fines. You have to begin to believe that there's something in the nature of this business that causes that to happen."

Citigroup Watch has a rather less sanguine view of the situation. Citigroup Watch/ICP claims that they were contacted "by CitiFinancial employees in South Carolina, who described how they were ordered and compensated to fool customers, with credit insurance and upselling to high-cost loans." ICP states that they notified both the Fed and press of the allegations.

Of particular note, ICP claims that they were contacted by the employees while Citigroup was applying to buy European American Bank. The Federal Reserve's Cease and Desist Order against Citigroup specifically states that their investigation was "conducted pursuant to the terms of the Board of Governors' order approving acquisition of European American Bank...by Citigroup...which terms were reiterated in the order approving the acquisition of Golden State Bancorp, Inc. and California Federal Bank...by Citigroup..."

Winston is not amused by companies, large or small, that take advantage of low income and other vulnerable consumers. Winston is also not amused that some industry analysts appear to regard such abuses as a natural and inevitable occurrence.

Winston applauds Citigroup Watch for taking appropriate steps, i.e. contacting regulatory authorities, when they believe they have evidence of wrongdoing. Winston also approves of the Fed undertaking the investigation with regard to their acquisition of European American Bank. However, such investigations that take place as part of an order approving a merger are insufficient.

Winston believes that banks need to be in full compliance with all applicable regulations prior to mergers being approved. Failure to ensure that banks comply with regulatory requirements can only lend credence to the belief that abuse of consumers is inevitable and acceptable.