[A-List] Citigroup: Banking on Misery

["bon moun" <sherrynstan@xxxxxxx>]

-----Original Message-----
From: chris@xxxxxxxxxxxxxxxxxxx [mailto:chris@xxxxxxxxxxxxxxxxxxx]
Sent: Thursday, June 05, 2003 8:00 AM
To: sherrynstan@xxxxxxx
Subject: FACING SOUTH: Banking on Misery

F A C I N G   S O U T H

A progressive Southern news report

June 5, 2003 - Issue 51

Published by the Institute for Southern Studies and Southern Exposure
magazine
  _____

SPECIAL REPORT - BANKING ON MISERY: Citigroup, Wall Street, and the
Fleecing of the South

Citigroup the biggest financial corporation in the world. And under the
leadership of CEO Sandy Weill, a surprising share of its fortunes come
from suspect deals that target vulnerable consumers with exorbitant
interest rates, hidden fees, and practices that fair-lending advocates
say "skirt the edge of the law."

In this special issue of Facing South, we present the results of a
seven-month investigation by award-winning journalist Michael Hudson of
Citigroup's predatory lending empire, which reaps billions in ill-gotten
gains targeting the consumers who can least afford it.

A longer version of "Banking on Misery" will appear in the summer 2003
issue of Southern Exposure, out later this month. It will also feature
reports from Dr. Robert Manning, author of Credit Card Nation, as well
as leading journalists reporting on credit card scams, pay-day lenders,
and others who prey on the most vulnerable.

To pre-order a copy of the summer 2003 issue (just $5) or to sign up for
a year's subscription to Southern Exposure (just $21), visit
www.southernstudies.org or mail to SE, P.O. Box 531, Durham, NC 27702.

* * *

BANKING ON MISERY
Citigroup, Wall Street, and the Fleecing of the South

By Michael Hudson


Maria Flores felt trapped. Breaking up with her boyfriend had stuck her
with loan payments she couldn't keep up. She says a manager from a
CitiFinancial branch in Atlanta threatened to send someone to her job
with an arrest warrant and tell her boss she was a deadbeat.

Flores says the manager told her she needed to come in and get a new
loan. She thought she had no choice.
So she signed-taking out a second mortgage and digging herself into a
deeper hole with CitiFinancial and, by extension, with the finance
company's corporate parent, Citigroup, the nation's largest and most
powerful bank company.

And her problems didn't end. As she fell behind again, she says,
CitiFinancial forced her to write post-dated checks to try and catch up.
When that didn't help, CitiFinancial had another solution: yet another
loan.
Flores says branch employees led her to believe she had to buy credit
insurance to get the new loan-and folded and flipped the papers so
quickly and deftly as she signed that she didn't realize the insurance
would cost her nearly $700 the first year alone.

The July 2002 deal carried a 17.99 annual percentage rate, or about
triple the market rate for home loans. Nearly all of the $17,398
mortgage represented debt rolled over from her previous loan; it cost
her $304 in fees to get $93.45 in new money.

She knew it was a lousy deal. But what choice did she have?

"I was desperate," she says. "I thought they were going to take my
house."
So, like millions of other CitiFinancial customers, Maria Flores did
what she thought she had to do.

She signed the papers.


SUBPRIME TIME

Over the past year, Citigroup and its CEO, Sanford I. Weill, have been
buffeted by investigations into the company's misadventures with Enron,
WorldCom, and other ill-fated Wall Street players.

But is there an overlooked scandal brewing for Citi in places far from
Wall Street? In Southern hometowns such as Selma, Ala., Ashland, Ky.,
and Knoxville, Tenn., people complain Citigroup has taken advantage of
them in an unglamorous part of its financial empire-personal loans and
mortgages aimed at borrowers with bad credit, bills piling up or, in
many instances, simply a trusting nature. Unhappy customers claim the
company manipulated them into paying excessive rates and hidden fees,
refinancing at unfavorable terms, signing deals that trapped them into
bankruptcy and foreclosure.

These borrowers are part of the growing "subprime" market for financial
services. They are mostly low-income, blue-collar and minority consumers
snubbed by banks and credit card companies. Still others are
middle-class consumers who have hit hard times because of layoffs or
credit card-fueled overspending. Whatever their circumstances, they pay
dearly. Citi's subprime customers frequently pay double or triple the
prices paid by borrowers with Citi credit cards and market-rate
mortgages-annual percentage rates (APRs) generally between 19.0 and 40.0
on personal loans and 8.5 and 21.9 on mortgages. And beyond exorbitant
APRs, critics and lawsuits claim, Citi has fleeced customers with
slippery salesmanship and falsified paperwork.

A seven-month investigation by Southern Exposure has uncovered a pattern
of predatory practices within Citi's subprime units. Southern Exposure
interviewed more than 150 people-borrowers, attorneys, activists,
current and ex-employees-and reviewed thousands of pages of loan
contracts, lawsuits, testimony and company reports. The people and the
documents provide strong evidence that Citi's subprime operations are
reaping billions in ill-gotten gains by targeting the consumers who can
least afford it.

"It's a pretty lowdown company that would take advantage of the working
poor like this," says Tom Methvin, an attorney with Beasley, Allen, an
Alabama firm that represents hundreds of borrowers who claim Citi did
them wrong. "Behind the curtains, they prey on the most vulnerable
people in our society."

Citi, critics say, is a model for America's financial apartheid: a
company that's slow to offer affordable credit to minority and
moderate-income communities (see "Reinventing redlining"), then profits
by pushing a costly alternative. Citigroup argues that its prime lenders
turn customers away because of legitimate assessments of credit
histories, and that its subprime units must in turn charge more because
their risks are greater.

These assertions are called into question by the fact that Citi's
subprime lenders charge high rates even to borrowers whose credit
records would qualify them for competitive-rate loans. A national study
by the Community Reinvestment Association of North Carolina (CRA-NC)
concluded that large numbers of so-called "A-credit" customers are being
charged higher rates only because they had the misfortune of walking
into one of Citi's subprime mortgage units rather than one of its
prime-rate lenders.

The study estimated this group includes nearly 90,000 predominately
African-American customers who took out first mortgages in 2000 from
Citi's panoply of subprime lenders. According to CRA-NC's calculations,
these borrowers paid an average of $327 a month more in interest than
their prime-rate counterparts, or an overcharge of $110,000 per borrower
by the time the loans are paid off. Over the lifetime of their loans,
these borrowers' excessive payments could total as much as $5.7 billion.

The company counters that it "has long maintained very high standards"
within its subprime operations. It says it doesn't discriminate or gouge
customers. Spokesman Steve Silverman denied requests for an interview
with Weill and said privacy concerns prevent the company from commenting
on individual borrowers' cases. Nevertheless, Silverman says Citi has
worked to address complaints about the way the subprime industry does
business: "We've really taken a leadership position on these issues and
tried to raise the bar for the industry and, frankly, for the benefit of
consumers."

The company has reined in some of its worst abuses, but it has done so
under pressure from activists and government. The changes fall short of
eradicating unfair practices-and in many instances seem little more than
empty gestures.

In his public statements, Weill has rejected the idea his company
victimizes anyone. In January, he told investors Citi "has become a
leader in lending to people who wouldn't qualify to get loans from
banks, or are embarrassed to go into a bank. We have to be very careful
that we quantify predatory lending as really something that is predatory
lending, and don't take the market away from people that really need
credit."

Citigroup's push into the subprime market is a dramatic example of how
the merger of high and low finance is playing out on Wall Street and on
side streets across the South. It's also the story of how one man blazed
a less-traveled path to Fortune 500 ascendance for himself and for
others who would imitate his example. And, finally, it's a case study in
how large corporations can fight off scandal and avert lasting reform
through a skilled combination of legal maneuvers, tactical retreats, PR
stratagems, and power politics.

TO READ THE REST OF "BANKING ON MISERY," INCLUDING RELATED WEB-ONLY
EXCLUSIVES, visit: www.southernstudies.org
  _____

LEND US A HAND - We work hard to make Facing South your Southern
progressive news source. If you can, help us out by making a
tax-deductible contribution at www.southernstudies.org/support.asp or by
mail to: Institute for Southern Studies, P.O. Box 531, Durham, NC 27702.
  _____

TURN IN YOUR FRIENDS - Know someone who might like FACING SOUTH? Write
us
at facingsouth@xxxxxxxxxxxxxxxxxxx and we'll add them to the mailing
list!
  _____

GET IN TOUCH WITH FACING SOUTH  -  Have feedback or a news tip to share?
Want
to be taken off the list? Please email us at
facingsouth@xxxxxxxxxxxxxxxxxxx
  _____

JOIN THE INSTITUTE, GET SOUTHERN EXPOSURE AND MORE

For more great coverage about the progressive South, join the Institute
for
Southern Studies. For just $21, you'll get a year's worth of the
award-winning
magazine Southern Exposure and discounts on Institute research reports.

Three easy ways to join:

1. Visit http://www.southernstudies.org/support.asp and sign up online
today!

2. Print out the form below and mail to: ISS, P.O. Box 531, Durham, NC
27702.

3. Print out and fax to (919) 419-8315 with your credit card
information.

ORDER FORM:

___ Please sign me up for Institute membership, including a year of
Southern
Exposure ($21)

___ I would like to make an additional tax-deductible contribution of:
    ___ $250 ___ $100 ___ $50 ___ $35 ___ Other:


Name:

Address:

City:                             State:         Zip:

Home phone:

E-mail:

I would like to pay by: ___ check    ___ Visa    ___ MasterCard

Visa or MasterCard number:

Name on Card:

Expiration Date:

Checks should be made payable to Institute for Southern Studies.

Copyright C 2003 Institute for Southern Studies. PO Box 531, Durham, NC
27702.
(919) 419-8311. www.southernstudies.org