The Federal Reserve on Thursday announced a $70 million penalty against Citigroup Inc., and a subsidiary regarding practices related to borrowers taking out riskier, higher-interest rate "subprime" personal and home-mortgage loans.
New York-based Citigroup, a major bank, and its Baltimore-based subsidiary CitiFinancial Credit Co., a consumer finance company, while not admitting to any wrongdoing, agreed to the penalty and to take steps to ensure compliance with federal lending regulations and to enhance compliance with consumer protection laws.
The Fed said that the $70 million penalty could be reduced by up to $20 million, depending on the amount of restitution payments actually made to certain borrowers.
The Fed said restitution shall be made available to borrowers who purchased joint credit insurance in connection with a co-applicant loan from CitiFinancial or any one of its U.S. retail branches during the period of Jan. 1, 2001, through Dec. 31, 2002. The Fed alleged that CitiFinancial violated federal regulations when it improperly required the signature of a co-applicant on some loans when the creditworthiness of the person taking out the loan was already sufficient.
"These alleged violations occurred in connection with attempts to increase joint insurance sales through an increased volume of co-applicant loans," the Fed said.
The Fed said restitution also shall be made available to certain borrowers whose personal loans from CitiFinancial or its subsidiaries were refinanced by CitiFinancial to a so-called EquityPlus loan.
The Fed's action "provides closure to an examination of the U.S. CitiFinancial branch network by the Federal Reserve that began in 2001," said Citigroup chief executive officer Charles Prince in a statement.
"The resolution of this matter is another important step in our continuing effort to address the issues of the past and move forward with standards that define best practices in our business," he added.
