Citigroup Fined Over Loan Practices

The Federal Reserve on Thursday announced a $70-million penalty against Citigroup Inc. and a subsidiary stemming from their handling of high-interest-rate “subprime” mortgages and personal loans.

New York-based Citigroup, the nation’s largest financial institution, and its Baltimore-based subsidiary CitiFinancial Credit Co., a consumer finance company, agreed to take steps to ensure compliance with federal lending regulations and to enhance compliance with consumer protection laws. They did not admit wrongdoing.

Community groups raised the issue of alleged abuses by Citigroup’s subprime operations two years ago when the groups tried to block the New York financial giant’s takeover of Golden State Bancorp, the parent of California Federal Bank. The Federal Reserve approved the $4.8-billion stock-and-cash deal unanimously in October 2002, but said it would continue to review Citigroup’s subprime lending practices.

The Fed said Thursday that the $70-million penalty could be reduced by as much as $20 million, depending on the amount of restitution payments made to borrowers.

The Fed said restitution should be made available to borrowers who purchased joint credit insurance in connection with a co-applicant loan from CitiFinancial or any of its U.S. retail branches from Jan. 1, 2001, to 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 sufficient.

Shares of Citigroup fell 2 cents to $46.52 on the New York Stock Exchange.