If there has ever been a deal that community and consumer activists would want to block, it is Citigroup Inc.'s planned acquisition of Associates First Capital Corp.
Activists have long charged that Associates engages in questionable lending practices, and Citigroup has gotten its own share of scrutiny from activists for allegedly abusive and discriminatory lending. Not surprisingly, activists called the megadeal, announced Wednesday, an alarming alliance that could lead to an increase of predatory lending to low-income and minority borrowers, and they vowed to fight it every step of the way.
"Associates is the worst predatory lender in America, and it's outrageous that the biggest, most powerful bank in America is buying it," said William Brennan, director of the Atlanta Legal Aid Society's Home Defense Program.
Bank mergers often draw fire from community activists, often to little avail. Certainly Citigroup appears to be unfazed. In a teleconference Wednesday Citigroup chairman Sanford I. Weill was asked whether he expects opposition to the deal from regulators because of Associates' reputation.
He replied: "Our company has a very good long-term record of being a good corporate citizen by being supportive of all of our various regulatory constituencies and what they're trying to accomplish. I'm hopeful that they would think we're the kind of company that they want to continue to work with in a constructive way in the future."
But given the number of charges that have been leveled against both Associates and Citigroup, this protest could turn out to be more aggressive than most.
"The largest CRA protest in the history of the country is about to unfold over this deal," Mr. Brennan said.
His words were echoed by other activists. Peter Skillern, president of the Community Reinvestment Association of North Carolina, said Associates engages in a host of abusive practices, including financing single-premium credit life insurance, charging exorbitant fees, employing abusive collection practices, flipping loans, and using the "worst" mortgage brokers.
"Their profits are made from blood money," Mr. Skillern said. "Our advice to Sandy Weill is, 'Don't buy trouble.' "
A spokesman for Associates, however, dismissed the concerns, saying the company operates within the law and ensures its borrowers are thoroughly educated and informed before they sign for a loan.
"Associates regards predatory lending as an abhorrent practice and is committed at every level to treating customers fairly and following all of the state and federal laws that are in place to protect consumers," he said. "We provide educational materials to borrowers at application that spells out the loan process, and I think our record over the past 82 years would suggest that we treat consumers well. Otherwise they would not keep returning to us in such great numbers."
But the Irving, Tex., consumer finance company has come under fire in myriad private lawsuits and government investigations.
The North Carolina Attorney General's Office is investigating Associates for allegedly predatory lending practices. The investigation, initiated last year after the office got more that 50 complaints about the company, is one of the first actions taken under North Carolina's predatory lending law, which was passed last year.
An official in the Attorney General's office would not comment on the investigation beyond confirming that it is taking place.
The Justice Department is reviewing Associates' lending practices for loans made by several Detroit-area mortgage brokers. Associates has been accused of charging higher interest rates to African-American applicants than to whites. A spokeswoman at the department would not comment.
The Associates spokesman confirmed that the Department of Justice investigation is taking place. He said that none of its employees has done anything wrong and that the charges are unwarranted.
Josh Zinner, coordinator of the Foreclosure Prevention Project for Seniors of South Brooklyn Legal Services, said the deal to buy Associates would not only increase Citigroup's involvement in subprime lending but also worsen a growing problem with the banking company.
For years Citigroup's conventional lending operations have inadequately served low-income and minority neighborhoods, he said, but at the same time the financial services giant has increased its interests in subprime lenders, which target the same neighborhoods.
Subprime lenders under the Citigroup umbrella include Citifinancial of Baltimore, formerly known as Commercial Credit, which was one of Mr. Weill's earliest acquisitions, and IMC Mortgage of Tampa, which Citigroup bought last year.
"This proposed purchase of Associates is really alarming because it would create a perverse economic incentive for Citigroup to red-line low-income, African-American neighborhoods with its conventional products so its subprime/predatory subsidiaries can come in and take advantage of the higher-cost, low-quality products," Mr. Zinner said.
"It's going to give legitimacy to their practices, just because of the name, Citigroup, and it will place everything under one roof," he said.
Another activist who sees a disparity in pricing between Citi and the subprime units is Sarah Ludwig, executive director of the Neighborhood Economic Development Advocacy Project.
"We feel that Citigroup has fallen short of making sure that all neighborhoods are served equitably and is using sort of two different arms to serve different markets," Ms. Ludwig said.
"Citigroup has had a long and very successful history of integrating companies with different cultures and bringing the businesses to our standards and practices very quickly," a Citigroup spokeswoman said.
"As an industry leader, we will operate the combined business according to those high standards."
But consumer advocates said they were skeptical that Citigroup could clean up the act of any company it buys and integrates.
"Sandy Weill is blowing smoke, because if he cleans it up, the profits will disappear," Mr. Brennan said. "The abuses are where the profits are."
Matthew Lee, executive director of Inner City Press/Community on the Move, said Citigroup's assurances are not enough for his group. He vowed to fight the acquisition despite the uphill battle that he acknowledged advocates face.
"We're facing the largest and most politically powerful bank in the country," Mr. Lee said. "If the concerns that the regulators have recently been expressing are sincere and true, there will be a lot of scrutiny on this acquisition. We will be sharing data and working together with other groups, because to get accountability will difficult given the size, prestige, and lobbying power of Citigroup."
Ms. Ludwig said the announcement of the merger "just underscored that Citigroup is not committed to fair lending, and it really wants to beef up its subprime lending business."
The Associates spokesman dismissed the activists' vows to fight the merger as opportunistic.
"Anytime there is a high-profile merger or acquisition, certain groups look at it as an opportunity to draw attention to their cause and their issues," he said.
"The fight is on," Mr. Skillern said. "We're fighting this merger, and we're joining other groups across the country to fight this one. I think you'll see a broad opposition to providing legitimacy and liquidity to a predatory lender like the Associates."