Citigroup – Subprime Lending (2001 – 2002)

Outcome: Successfully Withdrawn

WHEREAS our corporation originates subprime loans through its mortgage subsidiary and recent acquisitions, and the total of these loans is estimated to have been about $700 million in 1999;
Public concern has gathered momentum and a number of subprime lenders have been investigated by several federal authorities for alleged predatory lending practices in originating subprime loans.
These predatory practices include:
· Lending to borrowers with inadequate income, who will then default,
· Not reporting on payment performances of borrowers to credit agencies,
· Implying that credit life insurance is necessary to obtain the loan (packing),
· Unnecessarily high fees,
· Refinancing with high additional fees rather than working out a loan that is in arrears (flipping),
· High pre-payment fees
Actions that have been taken include:
· The Senate Special Committee on Aging heard testimony in March 1998 alleging predatory lending practices by some subprime lenders. One witness who had worked for an unspecified lender testified that he was pressured daily by his superiors to take advantage of vulnerable borrowers. Another witness spoke of a $75,000 loan at 17.71% interest rate to finance home improvements with $6,500 in points and $3,538 for credit life insurance policy, raising the monthly payments from $235 to an unaffordable $1,156;
· North Carolina passed a law in mid-1999 to prevent a number of predatory lending practices;
· The New York State Banking Department is holding hearings on similar regulations;
· The Federal Trade Commission has implemented an enforcement and consumer education campaign: “Operation Home Inequity.” The FTC has settled with seven small subprime lenders as well as with Fleet Finance ($1.3 million settlement). Several other large subprime lenders are under investigation including Associates First Capital, the largest subprime lender;
· The Attorney General of North Carolina has also opened a civil investigation of Associates First Capital;
· Delta Funding has faced predatory lending allegations in the State of New York.
Because we nevertheless believe that subprime lending is very profitable and does serve a useful and legitimate purpose when done in a manner that discloses costs to consumers and potential risks to shareholders;
BE IT RESOLVED that the shareholders request the Board of Directors to establish a committee consisting of outside directors of the Corporation to oversee the development and enforcement of policies to ensure that no employee of or broker for the corporation engages in predatory lending practices and that no loan originated or purchased is entailed by predatory practices; and to report before the next annual meeting to the shareholders on policies and their enforcement.