For the 15th time in the past three years, the Federal Trade Commission is alleging claims of "predatory" lending. This time, the accused firms are among the largest U.S. lenders.

According to the FTC, Associates First Capital Corporation and Associates Corporation of North America, known jointly as The Associates, engaged in "systematic and widespread abusive lending practices, commonly known as 'predatory lending.'"

In addition to The Associates, the complaint also names as defendants Citigroup Inc. and CitiFinancial Credit Company, Citigroup's consumer finance arm, as successors to The Associates.

The FTC alleges that The Associates violated the Truth in Lending Act, Fair Credit Reporting Act, and Equal Credit Opportunity Act. The federal agency claims that the companies used unfair collection tactics. The FTC also alleges the company violated the Federal Trade Commission Act by inducing unsuspecting and unsophisticated home owners to refinance existing debts into home loans with high interest rates, costs, and fees, and to purchase high-cost credit insurance.

The charges are a real kick in the pants for Citigroup, which spent $31 billion to acquire the Irving, Texas-based firm last November. In response to consumer complaints and to placate federal regulators, the big banking company said it would voluntarily adopt policies to help guard against abuses in its new "subprime" lending unit.

But consumer groups are taking great delight in the FTC complaint. They had objected strenuously to the merger unless regulators forced Citigroup to put more teeth into its plan to clean up The Associates.

According to the FTC, its investigation found that The Associates hid essential information from consumers, misrepresented loan terms, and packed optional fees to raise the loan costs.

"What had made the alleged practices more egregious is that they primarily victimized consumers who were the most vulnerable -- hard working homeowners who had to borrow to meet emergency needs and often had no other access to capital," the FTC's Jodie Bernstein said.

At the time the merger was completed, The Associates was one of the nation's largest "subprime" lenders. In 1999, according to public corporate records, the total dollar amount of all outstanding loans in The Associates' U.S. consumer finance portfolio was $29.7 billion. In that year, The Associates serviced 480,000 home equity loans.

Subprime lending, refers to the extension of loans to persons who are considered to be high-risk borrowers. The Associates, like other subprime lenders, charged its customers prices that were substantially higher than those available to borrowers with good credit in the prime market.

According to the FTC's complaint, the company obtained its customers through a variety of means, including direct mail offers that in some cases included "live checks," and the purchase of retail installment contracts.

Once in the Associates' loan portfolio, customers were aggressively solicited to take out new loans and refinance their existing debts into a single debt consolidation loan, typically a home equity loan.

The complaint alleges that promotional materials and sales pitches stressed -- in many cases, falsely -- that debt consolidation loans would lower customers' monthly payments and save them money.

The Associates trained its employees to tell consumers there would be "no out-of-pocket fees" or "no up front out-of-pocket costs" with its loans, the complaint charges, when in fact its mortgage loans came with high points and closing costs.

Consumers also were told, according to the FTC, that they would save money when consolidating existing debts into a home equity loan with the Associates.

Examples shown in the company's solicitations accurately illustrated the potential savings.

But, according to the complaint, the comparisons did not take into account the loan fees and closing costs typically added to the consumer's loan principal. Further, the comparisons did not reveal that with some loans, consumers would still owe the entire principal amount in a "balloon payment" at the end of the loan term.

The FTC complaint also charges the company engaged in practices designed to "induce borrowers to purchase, unknowingly, optional credit insurance products," a practice known as "packing."

According to the complaint, employees would quote prospective borrowers a monthly payment amount that would include a package of optional credit insurance products. These insurance products were intended to cover the borrower's loan payments in various circumstances, such as death, accident, illness or loss of employment, and the premiums were then added to the principal amount of the loan

Employees, says the FTC, referred to these products as "total payment protection," if they mentioned them at all, and were trained (until at least mid-1998) to quote the monthly payment with the cost of the insurance automatically included.

At the loan closings, according to the complaint, consumers were rushed through the process. If a borrower noticed that insurance products were being added to the loan, employees used various tactics to discourage them from removing the insurance, the complaint alleges.

The FTC also charged that The Associates employed abusive and unfair tactics in collecting on their loans, including:

Published: March 19, 2001

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.