ATLANTA ? American Indian homeowners who borrowed money from subprime lender The Associates may get a cut of a payout that could come to several hundred million dollars.
The Federal Trade Commission is suing The Associates and its new owner, CitiFinancial, a unit of Citigroup, for alleged predatory lending practices. The amount to compensate those on whom the lender allegedly preyed is unspecified, but it could be hundreds of millions of dollars.
While the suit doesn’t specify alleged victims by ethnicity, The Associates was by far the largest mortgage and home equity lender to American Indians during 2000, according to Federal Home Mortgage Disclosure Act data.
Units of the Associates loaned $750 million to Indians on and off reservation that year, more than twice the amount extended by the next largest lender.
American Indian borrowers who feel they were victims of unfair or deceptive practices by The Associates can contact the FTC toll-free at 1-877-862-0886.
In the suit filed last year at the U.S. District Court in Atlanta, the commission sought to demonstrate that abusive lending at Irving, Texas-based The Associates went back at least to Jan. 1, 1994. Citigroup has contested the suit, reportedly saying it is not responsible for abuses that may have occurred prior to its acquisition of The Associates in November 2000.
In the most recent motion, Judge Jack T. Camp last month granted the FTC’s motion to compel Citigroup to disclose documents it had been withholding. Judge Camp gave Citigroup until April 15 to comply.
Interestingly, the FTC motion raises the possibility that abusive practices may have continued after Citigroup took over the firm. ‘Recent evidence shows that CitiFinancial has been engaging in substantially the same acts and practices complained of The Associates’ the motion said.
Citigroup, for its part, has launched high-profile measures to turn around The Associates while integrating the acquisition into CitiFinancial, its consumer finance amount to the total financed, a practice widely regarded as abusive.
Citigroup is also issuing ‘progress reports’ to address concerns about predatory lending. Those reports detail measures to assure that consumers who might qualify for lower-cost loans are not steered into higher-cost ‘subprime’ products (the lower the credit quality of the borrower, the more he or she must pay for credit). Citi has invited some borrowers to apply to refinance their loans on more favorable terms. And it has implemented a rate reduction program for those who consistently make loan payments on time.
The company also has instituted independent assessments of company practices by ‘mystery shoppers’ who do not reveal their identities to the company. It has initiated partial refunds on the credit insurance premiums. It also is taking steps to review foreclosures on allegedly victimized borrowers and has suspended more than 1,000 foreclosures.
The initial FTC action alleged ‘systematic and widespread abusive lending practices’ at The Associates. It said the company used ‘deceptive marketing practices that induced consumers to refinance existing debts into home loans with high interest rates, costs and fees, and to purchase high-cost credit insurance.’
Jodie Bernstein, director of the FTC Bureau of Consumer Protection, said The Associates ‘hid essential information from consumers, misrepresented loan terms, flipped loans, and packed optional fees to raise the cost of the loans.’
This practice included false claims that refinancing debt at The Associates could be done with no out-of-pocket expense, when in fact high fees and ‘points’ were charged. (A point is one percent of the loan amount.)
The Associates charged up to eight points on mortgage loans, meaning that if a borrower took out a loan for $100,000, she would have to pay $8,000 to The Associates.
At the November 2000 sale to Citigroup, The Associates had a consumer finance portfolio worth some $30 billion.
