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

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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.

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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
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