The New York State Banking Department said Tuesday that it had issued an enforcement order against Citigroup Inc. for failing to live up to the spirit of a low-income lending agreement related to approvals for the 1998 merger that created the company.

The agency said it had required Citi - which consented to the order - to meet a minimum dollar target for lending in underserved communities, waive $1 million of fees on some low-interest loans made in those communities, and establish three new loan branch offices in predominantly minority communities in New York City.

The order stems from an agreement the then-Citicorp struck with the state when it sought approval for its merger with Travelers Corp. Under that pact, Citicorp had consented to making lending projections for low-income areas.

In order to meet these projections last year, Citigroup mailed large numbers of "live" checks of $500 to $1,000 to borrowers at Christmas, and it counted the checks as "home improvement loans," the state banking department said.

A Citigroup spokeswoman said that neither the 1998 agreement nor the Home Mortgage Disclosure Act, a 1975 law requiring lenders to report loans they make to underserved communities, specifies a loan's minimum size, an assertion the banking department did not dispute.

However, state regulators said they considered the checks to violate the spirit of the agreement, because they did not represent "meaningful" loans, and it concluded that the checks should not count toward Citigroup's goals.

According to the Banking Department, this is the first time a federal or state regulator has ever required a financial institution to commit to minimum loan target projections.

Citi's lending operations are receiving attention elsewhere; in a lawsuit, the Federal Trade Commission alleges that Associates First Capital Corp., a subprime lender the New York-based financial services giant bought last fall, engaged in abusive lending practices.

On Tuesday, Citigroup projected that it would lend as much as or more than the adjusted aggregate of other lenders in predominantly minority communities through 2003.

Elizabeth McCaul, the New York State Superintendent of Banks, said in a press statement: "We are ensuring that the lending projections made to New Yorkers are honored. I am confident that the new projections will be met, and that Citigroup is fully committed to making these loans."

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