Citigroup to End Sale of
Single-Premium Credit Insurance

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June 29, 2001
Bowing to pressure from consumer activists and government regulators, Citigroup says it will eliminate single-premium credit insurance on its mortgage loans. The practice is regarded as predatory and the New York General Assembly has been debating a measure that would outlaw it.

Under single-premium credit insurance, the entire fee for years of insurance is charged upfront, then wrapped into the mortgage loan at a high interest rate, boosting the borrower's monthly payments. The insurance is intended to protect borrowers in case they fail to meet their monthly mortgage payments.

Middle-class borrowers with good credit are generally permitted to pay their premiums monthly, greatly reducing the cost of the insurance, while lower-income and minority borrowers often wind up with single-premium insurance.

While the announcement won praise from some politicians, critics said that Citigroup, the nation's largest financial services company, was trying to clean up its more questionable lending practices under pressure from New York State regulators, who have been dragging their feet in approving Citigroup's acquisition of EAB, a Long Island bank.

Earlier in the week, the state banking department demanded that Citigroup commit to making more loans in minority neighborhoods. The company had sent out thousands of checks ranging from $500 to $1,000 to be used as home improvement loans in minority neighborhoods but the banking department said the mail blitz did not constitute "meaningful lending."

Citigroup has been facing a barrage of criticism since its acquisition of the Associates lending group. Earlier this year the Federal Trade Commission sued Associates and Citigroup, charging them with using "systematic and widespread abusive lending practices" to deceive home-equity borrowers.

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