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The Federal Trade Commission today filed a complaint in federal court charging Associates First Capital Corporation and Associates Corporation of North America (collectively, The Associates) with systematic and widespread abusive lending practices, commonly known as "predatory lending." The FTC alleges that The Associates violated the Federal Trade Commission Act through deceptive marketing practices that induced consumers to refinance existing debts into home loans with high interest rates, costs, and fees, and to purchase high-cost credit insurance. The FTC also charged The Associates with violating several other federal laws, including the Truth in Lending Act, Fair Credit Reporting Act, and Equal Credit Opportunity Act, and with using unfair tactics in collecting consumers' payments on its loans. In addition to seeking other relief, the FTC has asked the court to award redress to all borrowers who were injured as a result of the defendants' practices.

"The Associates engaged in widespread deceptive practices," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "They hid essential information from consumers, misrepresented loan terms, flipped loans, and packed optional fees to raise the costs of the loans. 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."

Associates First Capital is a Delaware corporation that was headquartered in Irving, Texas, and was the parent company of Associates Corporation of North America. In September 2000, Citigroup Inc., based in New York City, announced it would acquire The Associates for $31 billion and merge The Associates' operations into its own. At the time the merger was completed on November 30, 2000, 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; in 1997 (the last year for which figures were available) the company also had nearly 3 million personal loans.

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.

Subprime lending refers to the extension of loans to persons who are considered to be higher risk borrowers. The Associates, like other subprime lenders, charged its customers prices that were substantially higher than those available to borrowers in the prime market. This was reflected primarily in the higher interest rates and points charged to such customers. For example, The Associates charged as many as eight points on mortgage loans. (Each point equals 1 percent of the amount financed.)


Deceptive Savings Claims

According to the FTC's complaint, The Associates obtained its customers through a variety of means, including through direct mail offers that in some cases included "live checks," and the purchase of retail installment contracts from sellers of consumer goods. 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, a practice known as "flipping." The complaint alleges that The Associates' 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 that 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.

Specifically, the complaint alleges that The Associates violated the Federal Trade Commission Act by falsely representing that:

  • Consumers would save money when consolidating existing debts into a home equity loan with The Associates, and the examples shown in The Associates' solicitations accurately illustrated the potential savings. In fact, according to the complaint, these comparisons did not take into account the loan fees and closing costs The Associates typically added to the consumer's loan principal. Further, the companies' comparisons did not reveal that for certain Associates loans, consumers would still owe the entire principal amount in a "balloon payment" at the end of the loan term.
  • Consumers could pay off their current debts (e.g., credit card and other debts) with a home equity loan for the same amount. In fact, The Associates' loans also came with substantial fees and costs and, in some cases, credit insurance premiums.

Credit Insurance "Packing"

The FTC complaint also charges that The Associates engaged in practices designed to induce borrowers to purchase, unknowingly, optional credit insurance products, a practice known as "packing." The Associates' employees, according to the complaint, 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 added to the principal amount of the loan ("single-premium credit insurance"). The employees 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, The Associates' employees rushed consumers through the process. If the consumer noticed that the credit insurance products were being added to the loan, The Associates' employees used various tactics to discourage them from removing the insurance, the complaint alleges.

Specifically, the complaint charges that The Associates engaged in the following deceptive practices in violation of the FTC Act with respect to credit insurance:

  • Misrepresenting that consumers could obtain "total payment protection," or insurance, on their loan without any additional cost. In fact, the insurance added hundreds or thousands of dollars to consumers' loan costs;
  • Misrepresenting that credit insurance would provide full coverage on consumers' loans. In fact, in many instances, the insurance was issued for a term shorter than the loan term and would not provide full coverage on the loan;
  • Failing to disclose (or disclose adequately), when quoting monthly payment amounts, other material terms of the offer, such as (a) that the monthly payment amount included credit insurance which was an additional cost added to the loan; (b) that the entire premium for the credit insurance was financed up front and the consumer paid additional points and interest on the loan as a result; (c) that the purchase of credit insurance was optional and not required to obtain the loan; and (d) the extent to which the insurance would not cover the full loan term or loan balance; and
  • Misrepresenting that consumers could cancel credit insurance within a stated number of days (e.g., 30 days) of the loan closing without cost. In fact, according to the complaint, when consumers canceled credit insurance within the stated number of days, The Associates credited their accounts only for the insurance premium amount and failed to refund any portion of the financed points on the premium or the excess interest attributable to the insurance.

Unfair Debt Collection Practices

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

  • disclosing consumers' debts to third parties without the consumer's consent;
  • calling consumers at their place of employment after being advised by the consumer that such calls were inconvenient or not permitted; and
  • making repeated and continuous telephone calls to consumers with intent to annoy, abuse, or harass.

Credit Statute Violations

In addition, the FTC charges the defendants with violating the Truth in Lending Act ("TILA"). The Associates provided certain borrowers with "Homeowner's Express Loans," which were offered pending the closing of a home equity loan. According to the complaint, the Homeowner's Express Loan and the subsequent home equity loan were, in reality, one transaction that The Associates "split" into two so as to provide consumers with immediate cash. (Immediate cash is not possible on home equity loans in most circumstances, in part because TILA provides consumers with a three-day right of rescission). The complaint alleges that The Associates violated TILA by failing to give Homeowner's Express Loan borrowers proper disclosures and disbursing loan funds to those consumers before the expiration of the rescission period. The complaint also alleges that the defendants violated TILA by failing in their advertisements to disclose clearly and conspicuously loan fees, balloon payments, and other information, and by failing to retain certain records of compliance.

Further, the complaint charges that The Associates violated the record keeping requirements of the Equal Credit Opportunity Act by failing to retain written records relating to consumers' loan applications, including the application for consumer credit and other written and recorded information used in evaluating the application.

Finally, the complaint charges that The Associates violated the Fair Credit Reporting Act by using or obtaining consumers' credit reports for impermissible purposes, i.e., to solicit consumers for new or additional loans beyond the loan for which the report was originally obtained.

The FTC has asked the court to prohibit the defendants from violating the FTC Act and other laws in the future in connection with offering and extending credit, and to award redress to all borrowers who were injured as a result of the defendants' practices.\

The FTC has increased its enforcement activities to halt illegal lending practices engaged in by subprime lenders, and the matter announced today is the FTC's 15th case involving the subprime industry since 1998. Many of these cases have involved deceptive practices by small and large subprime lenders, or violations of the Home Ownership and Equity Protection Act (HOEPA). HOEPA provides special protections for consumers in certain non-purchase, high-cost loans secured by their homes. The Commission has also testified before Congress and federal and state agencies regarding predatory lending problems, and made recommendations regarding legislative and regulatory changes to strengthen consumer protections.

In addition, the Commission has implemented an aggressive consumer education program and has published a series of free publications specifically for homeowners and potential home buyers. "High-Rate, High-Fee Loans (Section 32 Mortgages)" alerts homeowners about their rights under HOEPA. Last January, the Commission published a new consumer alert about home-equity lending, "Shopping for a Home Equity Loan?" In January 1999, the Commission, along with ten other federal agencies, including the Federal Reserve Board, produced "Looking for the BEST Mortgage - Shop, Compare, Negotiate" to help consumers shop for home loans. In July 1999, the Commission partnered with AARP to produce "Need a Loan? Think Twice About Using Your Home as Collateral." Other available publications include: Home Equity Loans: The Three-Day Cancellation Rule, Home Equity Scams: Borrowers Beware! and Mortgage Discrimination.

The FTC filed its complaint in the U.S. District Court for the Northern District of Georgia, Atlanta Division, on March 6, 2001. The Commission vote authorizing staff to file the complaint was 5-0.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. The case will be decided by the court.

Copies of the complaint are available from the FTC's web site at and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement

(Civil Action No.: 010CV-0606)
(FTC File No.: 972 3152)

Contact Information

Media Contact:
Howard Shapiro,
Office of Public Affairs
Staff Contact:
Joel Winston or Peggy Twohig,
Bureau of Consumer Protection