The red-white-and-blue cover of Citigroup Inc.’s 1999 annual report proudly proclaims its policy of “Lead. By Example.”

Citigroup’s Election Day filing with federal and state regulators of modifications to its subprime lending program does not meet this high leadership standard, and knowledgeable consumer groups have criticized it as cosmetic.

This failure to be the national leader on subprime lending is especially significant, since Citigroup is poised to become, as a result of its deal to acquire Associates First Capital Corp., America’s largest subprime lender. Instead, it appears that Citigroup is relying on its public relations skills and the laissez-faire attitude of regulators.

What is needed is more than Citigroup’s CEO, Sandy Weill, appears to be willing to do at this time.

It is noteworthy, for example, that the most respected member of the Citigroup team, former Treasury Secretary Robert E. Rubin, is conspicuously absent from the proposal submitted to the federal regulators, even though his reputation may be the key to Citigroup being accepted as the national subprime leader.

Equally damning, Mr. Weill has submitted a perfunctory letter to regulators that takes no personal responsibility for ensuring that this leadership occurs.

Citigroup’s sleight of hand is best demonstrated in the area that is key to reforming the subprime market, the conversion of loans from subprime to prime. This is particularly important, since up to half of the nation’s subprime borrowers may be eligible for prime loans, according to Fannie Mae.

Rather than a bold pledge to ensure personal responsibility, Citigroup offers a choice that runs counter to human behavior, particularly when one is credit-starved.

Citigroup states that if an inner-city resident seeks a loan from one of its subprime affiliates, Citi will not automatically upgrade the loan if the individual is eligible for a prime loan. Instead, it will offer the potential borrower the following alternatives:

  • Be approved immediately for a subprime loan, with scanty documentation.
  • Call an “800” number and possibly, after 60 days and very substantial documentation and a visit to another office in another part of the city, you may be approved for a lower-rate loan. Inner-city residents, like the vast majority of Americans, prefer a bird in the hand to two in the bush.Since neither Mr. Weill nor the regulators appear willing to develop effective practices to avoid predatory lending, we offer the following guidelines:

  • Mr. Weill and Mr. Rubin should withdraw their present equivocal subprime proposal and instead, after consultation with community groups, file a subprime best-in-the-nation leadership plan with regulators. The plan should make clear that all subprime policies and practices, whether or not potentially predatory, will be reviewed monthly by a top management committee, and that Mr. Weill and Mr. Rubin will meet quarterly with this committee and take personal responsibility for all policies and practices.
  • All existing subprime loans at Citigroup and Associates will be carefully reviewed to determine if they are predatory, or if the borrower might be eligible for a prime or lower-interest subprime loan.
  • After a review of all loans, full restitution should be provided to all victims of predatory or onerous subprime loans without requiring the victims to complete a complex complaint process.
  • The spirit behind the D. C. City Council’s recent proposal to ban foreclosures on home loans with predatory characteristics should be embraced, including automatic retroactive efforts relating to Associates’ predatory portfolio.
  • Citigroup’s powerful investment arm, Salomon Smith Barney, has been left out of the equation. A pledge should be made that Salomon will engage in intensive due diligence before becoming involved in the financing of subprime loans and will assume full legal responsibility for predatory loans.
  • Citigroup should develop, with broad consumer input, a consumer bill of rights for all subprime lending that will make it the national leader in responsible subprime lending.
  • Citigroup should put in place an aggressive, proactive system to convert subprime into prime loans in accordance with recent pro-consumer policies unveiled by Fannie Mae and Freddie Mac, rather than the choice that Mr. Weill has proposed.
  • Mr. Rubin and Mr. Weill should meet personally with representatives from the 70 community and church groups that have filed protests against Citigroup’s deal for Associates with federal and state regulators, in order to develop “best subprime practices” that have the full confidence of community groups, including those that doubt the sincerity of Citigroup’s halfway measures. Mr. Gamboa is executive director of the Greenlinings Institute of San Fransisco and a member of the Federal Reserve's Consumer Advisory Council. Mr. Dean is president and chief executive officer of the Greater Phoenix Area Urban League.

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