Home > Banking Information & Regulation > Public Meeting Transcripts > PMT - Agendas June 25-26, 1998
Public Meeting Transcripts
Public Meeting Regarding Citicorp and Travelers Group
Thursday, June 25, 1998
Transcript of Panel Five
150 6 MR. LONEY: At this point we will 7 move to Panel Five, Josh Zinner, Karen Thomas, 8 Shanna Smith, Mark Silverman, Sarah Ludwig and 9 Hilary Botein. 10 It appears to me that you folks have 11 just changed the order. 12 Ms. Thomas. 13 MS. THOMAS: Good morning. My name 14 is Karen Thomas, representing the Independent 15 Bankers Association of America. Thank you for 16 the opportunity to present our views. 17 The IBAA strongly opposes the 18 Travelers/Citicorp application. The proposed 19 merger carries serious adverse consequences for 20 consumers, community banks, and the entire 21 financial services industry. 22 The merger is the largest in American 23 business history and portends awesome 24 restructuring of the financial landscape. 25 There are a lot of problems with this union, . 151 1 2 but the gratuitous way it treats U.S. banking 3 law and regulation is, perhaps, the most 4 unsettling. It is an illegal merger, announced 5 with the express intent of pressuring Congress 6 into making it legal. 7 First, it violates the Bank Holding 8 Company Act by seeking to combine insurance 9 underwriting and banking, under the guise of a 10 conditional promise to divest the prohibited 11 insurance activities. Second, it violates the 12 Glass-Steagall Act by invading the barriers 13 between investment and commercial banking 14 established by Congress 65 years ago. 15 With a hubris not often exhibited to 16 the Federal Reserve Board, the merger parties 17 have admitted they are well aware that existing 18 law prohibits the insurance activities. They 19 ask the Board to allow the merger anyway, in 20 the hope that Congress will change the law. 21 Contrary to their belief, the 22 divestiture provisions of the Bank Holding 23 Company Act do not allow Citigroup up to five 24 years to warehouse its insurance activities. 25 The provisions are intended to allow orderly . 152 1 2 disposition of impermissible activities within 3 two years. It is not available to a bank 4 holding company with no bona fide intent or 5 plan to divest, and is vigorously lobbying to 6 change the law to avoid divestiture. 7 Despite thousands of pages filed with 8 the Fed, Citigroup fails to offer even the 9 beginnings of an approach to divestiture. 10 Nowhere do they say it will divest its 11 underwriting companies, precisely because it 12 has no such intention. 13 On April 6, Travelers CEO Sanford 14 Weill dismissed the need for divestiture 15 saying, "I don't think we have to spin anything 16 off to make this happen; maybe what we are 17 doing will cause the legislation to change." 18 Citicorp's CEO John Reed added he 19 "reasonably believes there will not be a legal 20 problem," but noted that pending legislation 21 would make this merger, in fact, quite legal. 22 They can't have it both ways. 23 The Federal Reserve's policy 24 statement on divestiture says an affected 25 company should "submit a divestiture plan . 153 1 2 promptly" and "complete divestiture as early as 3 possible during this specified two-year 4 period." Extensions are not to be granted 5 unless the company "has made substantial and 6 continuous good faith efforts to accomplish the 7 divestiture within the prescribed period." 8 Even if divestiture were available, Citigroup 9 has no intention of complying with this policy 10 because it has no honest intent to divest. 11 Equally unprecedented is the scope of 12 the merger's combination of banking and 13 securities activities in violation of Section 14 20 of the Glass-Steagall Act. 15 The new Citigroup's Section 20 16 subsidiaries would have combined capital of $23 17 billion, making it the second largest 18 securities firm in the nation behind Merrill 19 Lynch. 20 The unprecedented impact and size of 21 these securities activities render the Fed's 22 current 25-percent-of-revenues test ineffective 23 and an inappropriate measure of what 24 constitutes "engaged principally" in securities 25 underwriting. Indeed, back in 1988 when the . 154 1 2 Second Circuit reviewed the then 3 5-percent-of-revenues cap, the court said that 4 size alone could contravene Section 20. The 5 court specifically rejected one interpretation 6 of "engaged principally" because it would have 7 allowed a bank to be affiliated with one of the 8 nation's largest investment bankers, Merrill 9 Lynch, a result, the court said, is 10 inconsistent with congressional intent. If 11 Salomon Smith Barney and Robinson-Humphrey are 12 permitted to coalesce into commercial banking, 13 Section 20 of Glass-Steagall has no meaning at 14 all. 15 Finally, approval of the application 16 would violate the separation of powers doctrine 17 embodied in the Constitution. Approval would 18 improperly usurp the powers of Congress at the 19 very time Congress is considering 20 legislation -- supported by the Fed -- that 21 would amend both the Bank Holding Company and 22 Glass-Steagall Acts to permit the proposed 23 transaction. 24 This unique deal would create a new 25 bank holding company with $700 billion in . 155 1 2 assets, engaged at the outset in a number of 3 activities Congress has thus far prohibited for 4 bank holding companies. The transaction is 5 essentially too big to unravel. As such, 6 approval of the application would effectively 7 coerce Congress to amend a law to legitimize 8 the transaction. 9 The Board is being asked to tie 10 Citigroup to the railroad tracks and as the 11 time for divestiture approaches, Congress will 12 have little practical choice but to save the 13 day by amending the law. 14 The Federal Reserve has always 15 recognized the importance of the rule of law as 16 the law exists, not as some might wish it to 17 be. We urge the Board to resist the temptation 18 to advance a legislative agenda by preempting 19 Congress. The Board should deny the 20 application. 21 Thank you. 22 MR. LONEY: Thank you, Ms. Thomas. 23 Mr. Silverman. 24 MR. SILVERMAN: Hi. Good morning. 25 My name is Mark Silverman. I am speaking today . 156 1 2 on behalf of Citicorp-Travelers Watch. 3 Citicorp-Travelers Watch is a 4 coalition of advocates and community groups 5 concerned about the impact of the proposed 6 merger on communities and consumers. We formed 7 this coalition because we believe the proposed 8 merger is one of such unprecedented magnitude 9 and complexity that it warranted special 10 scrutiny. 11 Citicorp-Travelers Watch is opposed 12 to this proposed merger for several reasons. 13 First, the merger is illegal. The 14 affiliation between Citibank, as a member bank 15 of the Federal Reserve Board and Travelers' 16 subsidiaries that are engaged principally in 17 securities dealings is simply prohibited by the 18 Glass-Steagall Act. Further, the proposed 19 Citigroup would be in violation of the Bank 20 Holding Company Act by continuing to hold 21 Travelers' subsidiaries dealing in insurance. 22 As we discussed this morning, 23 Citicorp and Travelers are relying on the 24 two-year grace periods under the law to divest 25 themselves of their impermissible insurance . 157 1 2 holdings. I want to say a couple of things 3 about that. 4 First, that is of no help to the 5 securities holdings insofar as it does violate 6 Glass-Steagall. To the extent that the 7 reliance of the two-year provision has any 8 merit whatsoever, and it has none for all the 9 reasons discussed, it is of no help for the 10 securities holders. There is no grace period 11 in Glass-Steagall, and Mr. Prince this morning 12 failed to address that, and the application 13 nearly fails to address that. 14 Further, Citicorp and Travelers, with 15 respect to its insurance holdings, have so far 16 put forward no plan for divestitures. And as 17 they candidly admit in their application, their 18 willingness to use the grace period is to get 19 the law changed so they don't have to divest. 20 Indeed, they have already begun to lobby 21 Congress about it. 22 The Board should not allow Citicorp 23 and Travelers to follow the strategy for at 24 least three reasons: 25 First, this is not what the two-year . 158 1 2 provision was designed to do. It is supposed 3 to give newly-formed bank holding companies 4 time to conform to the law, not time to force 5 the law to conform to them. 6 Second, the law may well not change 7 within that time, and if not, the proposed 8 Citigroup hardly could simultaneously divest 9 from, and integrate into itself, the various 10 impermissible insurance holdings. It is more 11 likely that in the absence of a change in the 12 law Citigroup will be forced into an 13 ill-conceived, hurried divestiture that would 14 threaten the health not only of itself, but 15 given its would-be status of the world's 16 largest financial institution, the health of 17 the financial markets as well. 18 Third, in deciding whether to pass 19 financial modernization legislation, Congress 20 should be concerned only with legitimate policy 21 arguments regarding what is best for 22 communities and the economy. If the Board 23 approves this merger prior to any change in the 24 law, Congress, pressured by Citigroup and 25 concerned about the consequences of a forced . 159 1 2 divestiture, can enact one of the most 3 embarrassingly blatant pieces of 4 private-interest legislation in recent memory. 5 In short, by serving as an accomplice to 6 Citicorp's and Travelers' strategy of 7 manipulating the law to ends not originally 8 within its contemplation, the Board risks 9 undermining the legitimacy of itself and the 10 legislature, and robs the public of a 11 policy-focused debate of what is being called 12 financial modernization. 13 Further, as documented in 14 Citicorp-Travelers Watch's written comments to 15 be filed with this Board, Citicorp's extremely 16 poor service and lending record is in clear 17 violation of the Community Reinvestment Act 18 and, as such, on its own requires denial of 19 this merger application. In addition, the 20 proposed activities of Citigroup clearly fail 21 the public benefits test of the Bank Holding 22 Company Act, and thereby similarly require 23 denial of the application. 24 We are also concerned that our 25 repeated and reasonable requests for . 160 1 2 information from these companies have been 3 largely met with delay and denial. Travelers 4 has been particularly unresponsive, providing 5 us with almost none of the information 6 requested. 7 Citicorp, while responding somewhat 8 more to our request than Travelers, took until 9 just yesterday to do so, and still is 10 unresponsive to certain crucial elements of our 11 request from these companies. Of course, in 12 response to the Board's own request for 13 information, Citicorp and Travelers continue, 14 on their own authority, to deem certain 15 information confidential and simply to not turn 16 it over. 17 The public must be given the 18 opportunity to adequately analyze all aspects 19 of this merger by having full access to 20 information, and the Board should be cognizant 21 of its role in ensuring that access. 22 Finally, Citicorp-Travelers Watch 23 requests that the Board asks all parties 24 testifying before it at this meeting to 25 disclose any financial contributions they may . 161 1 2 have received from Citicorp or Travelers. We 3 believe that such disclosures are crucial to 4 preserving the legitimacy and propriety of this 5 public meeting. 6 In sum, the poor service records of 7 these companies, the clear legislative mandates 8 of Glass-Steagall and the Bank Holding Company 9 Act, and the cynical strategy of these 10 companies in manipulating the law, all require 11 denial of the application to merge as a matter 12 of both law and policy. 13 Thanks very much for your time. 14 MR. LONEY: Thank you, Mr. Silverman. 15 Ms. Botein. 16 MS. BOTEIN: Thank you. 17 My name is Hilary Botein, and I am 18 the associate director of the Neighborhood 19 Economic Development Advocacy Project or NEDAP. 20 But I'd just like to point out it is advocacy, 21 not advisory. I don't know why it appears that 22 way in this schedule. NEDAP is also a member 23 of the coalition Citicorp-Travelers Watch. 24 I'd like to thank the Federal Reserve 25 Board for holding this hearing because I think . 162 1 2 it is a very important one, one very important 3 step in soliciting broad public input on a 4 merger that is this big and this complex. 5 NEDAP is a resource center for groups 6 and advocates working on economic justice 7 issues in low-income neighborhoods and 8 communities of color all over New York City, 9 and thus we have a unique perspective on 10 community reinvestment issues as they affect 11 neighborhoods all over the city. Accordingly, 12 my testimony today is going to focus on the 13 impact of Citicorp and Travelers' practices on 14 local economies and residents and the 15 neighborhoods where NEDAP works. 16 It is worth noting that many 17 organizations testifying in support of the 18 merger are recipients of Citibank grants, and 19 we urge you to ask all testifiers if their 20 organizations receive funding from Citibank. 21 My comments here are limited by time, 22 but they are also limited by the complexity of 23 the merger. We simply haven't had enough time 24 to digest all of the material in the 25 application and elsewhere. And we have urged . 163 1 2 the Board, and urge you again, to extend the 3 comment period. 4 Furthermore, as my colleague stated, 5 Citicorp and Travelers have been barely 6 responsive to our request that they provide 7 basic information about their companies, and 8 that has hindered our ability to analyze the 9 impact of the merger. 10 Travelers, in particular, has been 11 unforthcoming, and that is one of the reasons 12 why my testimony today is going to focus 13 primarily on Citibank's record. 14 As a threshold matter, NEDAP's 15 position is that the proposed merger is 16 illegal, as it will create an affiliation 17 between a bank holding company and securities 18 and insurance companies that is prohibited by 19 the Glass-Steagall Act and the Bank Holding 20 Company Act. If the Board approves the merger 21 without developing standards to be applied to 22 such an unprecedented transaction, it will make 23 a mockery of the regulatory process, by 24 allowing Citicorp and Travelers to brazenly 25 violate existing law. . 164 1 2 In addition, and the focus of my 3 testimony, Citibank has violated the Community 4 Reinvestment Act by failing to meet the credit 5 needs of low-income communities. From the 6 neighborhood perspective, Citibank is an 7 elusive entity with scant presence in terms of 8 bank services, loans, or community reinvestment 9 personnel. 10 Citibank's retail banking services 11 utterly disregard the needs of low-income 12 communities and consumers. Only six of 13 Citibank's 200 New York City branches are 14 located in low-income neighborhoods. 15 In 1996, Citibank closed and 16 downgraded to ATM service a total of 55 17 branches, harming low-income neighborhoods 18 disproportionately. The bank is now 19 promoting -- we heard this morning about 20 them -- two new video branches in low-income 21 neighborhoods where customers will have no 22 opportunity to speak to a teller or loan 23 officer in person. This plan is an insult to 24 residents, who might wonder why this special 25 new technology is not appearing in upper-income . 165 1 2 neighborhoods. 3 By raising its minimum deposit amount 4 for free checking to $6,000 in linked accounts, 5 Citibank sent a further message it is not 6 interested in the business of low-income 7 people, as does its increased emphasis on 8 computer banking, despite the bank's absurd 9 claim in its application to the Board that 10 Citibank-sponsored research shows that a large 11 percentage of this population plans to buy a 12 computer in the near future. Meanwhile, 13 ironically, a Citicorp subsidiary, Citibank EBT 14 Services, will soon be profiting from 15 electronic delivery of public assistance 16 benefits and food stamps to New York State 17 recipients. 18 There has been a lot of talk, 19 actually, about this this morning and how it is 20 wonderful because it is going to bring 21 low-income people into the banking mainstream. 22 I just want to point out that EBT is not going 23 to give the public a real bank account. It is 24 more like a Metrocard or something that they 25 can put in the ATM machine to get their public . 166 1 2 assistance benefits out of that. So I don't 3 really see how that brings low-income people 4 into the banking mainstream. 5 Citibank's own reported Home Mortgage 6 Disclosure Act data demonstrate that the bank 7 targets its home mortgage lending to affluent 8 white borrowers and communities. For example, 9 in 1996, Citibank made only six loans to 10 low-income neighborhoods in the New York City 11 metropolitan area. 12 As ACORN stated, Citibank rejected 13 African-American and Latino applicants for 14 conventional home purchase mortgages 15 two-and-a-half times more frequently than white 16 applicants. And in Manhattan, predominantly 17 white neighborhoods received 75 percent of 18 Citibank's loans in 1996. 19 This redlining of low-income and 20 minority neighborhoods and communities of color 21 sets the stage for predatory lenders such as 22 Travelers' subsidiaries Primerica and 23 Commercial Credit, to target their high-rate 24 low products at low-income communities, 25 stepping into the credit void created by . 167 1 2 Citibank. 3 In 1996, Citibank made no permanent 4 direct loans for purchase of multifamily 5 housing in all of the New York City 6 metropolitan area, where most residents -- at 7 all income levels -- live in multifamily rental 8 housing. Instead, the bank has financed 9 multifamily housing only through large 10 intermediary organizations, many of which are 11 testifying here today. 12 Given Citibank's failure to provide 13 retail banking services or loans to low-income 14 neighborhoods, it is perhaps not surprising 15 that the bank's community reinvestment staff -- 16 the people who are charged with ensuring that 17 Citibank meets the credit needs of all 18 communities that it serves -- display very 19 little familiarity with communities and their 20 needs. Groups have commented to us that 21 Citibank is reluctant to send high-level staff 22 to community meetings, and that staff, when 23 they do appear, are defensive and combative. 24 In closing, I'd just like to say, if 25 the Board approves this merger, it will be . 168 1 2 approving the unprecedented creation of a 3 financial services giant that subscribes to a 4 separate and unequal philosophy. Affluent 5 customers will continue to avail themselves of 6 Citibank's loans, private-banking services, and 7 electronic innovations. Low-income customers 8 will be served by Primerica, Consumer Credit, 9 and Citibank EBT Services. 10 NEDAP joins with the other nine 11 members of Citicorp-Travelers Watch in urging 12 the Board to deny the application. 13 MR. LONEY: Thank you. 14 Ms. Ludwig. 15 MS. LUDWIG: Thank you for the 16 opportunity to testify today to register our 17 absolute opposition to the proposed merger of 18 Travelers Group and Citicorp. I am testifying 19 in my capacity as coordinator of the New York 20 City Community Reinvestment Task Force. 21 The task force was established in 22 1995 to promote meaningful reinvestment in 23 affordable housing preservation and 24 development, microenterprise, and community 25 development institutions in New York City's . 169 1 2 low-income neighborhoods. Since then, the task 3 force has grown to more than 100 community and 4 citywide organizations throughout New York 5 City. 6 Through its Regulatory Working Group, 7 the task force has engaged in meetings over the 8 past eight months with each of the federal 9 banking agents, including representatives of 10 the Federal Reserve Bank of New York, to 11 discuss deficiencies community group and 12 advocates see in regulators' enforcement of the 13 Community Reinvestment Act. 14 It will be impossible to convey all 15 of the grave concerns we have concerning the 16 proposed Citicorp-Travelers merger in the five 17 minutes allotted. I will keep it simple and 18 refrain like every other panel. 19 The Federal Reserve Board must not 20 approval Travelers' application because the 21 proposed transaction is illegal. 22 To sign off on the merger will 23 constitute an affront to the public, and 24 underscore that large and powerful corporations 25 influence government decision making even to . 170 1 2 the point of obtaining approval on illegal 3 transactions. 4 Some would argue, and some have 5 argued this morning, that structural changes in 6 the financial services industry are well 7 underway, and that our laws are antiquated and 8 need to be revamped to reflect these changes. 9 The Glass-Steagall and Bank Holding Company 10 Acts are still on the books, however, and the 11 task force's firm position is that as long as 12 laws forbid this merger, the Fed would be 13 grossly overstepping its bounds to approve it. 14 Second, approving the application 15 would constitute hideously unsound policy on 16 the part of the Federal Reserve Board. 17 Travelers and Citicorp would have us 18 think that the proposed merger is simply a 19 routine application to create a bank holding 20 company and that no special scrutiny is 21 warranted. As we all know, the planned 22 Citigroup would be the first of its kind in 23 this country, a new and mammoth holding company 24 that engages in banking, securities, and 25 insurance business. . 171 1 2 The largest in the country's history, 3 the proposed merger has implications for people 4 and economies at local, regional, national and 5 global levels. It presents serious new 6 regulatory questions, contrary to what 7 Travelers and Citicorp purport, for which the 8 Federal Reserve has yet to develop a set of 9 standards. 10 It is not surprising that many regard 11 this proposed merger not only as a fait 12 accompli, but also as a brazen attempt by 13 powerful corporations to take advantage of 14 regulatory and legislative processes to create 15 a giant company organized to maximize profits, 16 at whatever expense the communities and 17 consumers. 18 Then there is Citibank and Travelers' 19 respective records. The task force in the last 20 three years has frequently heard reports 21 concerning Citibank's illusory presence in 22 low-income communities throughout New York 23 City, as well as a host of concerns over 24 Citibank's remarkably heavy investment and 25 intermediaries in lieu of or absence of more . 172 1 2 direct lending programs. 3 We first heard about Citibank's 4 practices in the sort of concerted way when the 5 bank engaged in aggressive bank branch closings 6 and conversion to ATM service only, a few years 7 ago. Most task force members see a direct 8 correlation between Citibank's presence in 9 low-income communities and the bank's failure 10 to engage in direct lending in low-income 11 neighborhoods. 12 You will hear today and tomorrow from 13 a long list of people representing 14 intermediaries and other organizations who will 15 testify on behalf of Citibank and the proposed 16 merger -- even though we have heard from some 17 directly and some indirectly that many of them 18 personally agree that the merger is legally 19 impermissible. Many are even keenly aware that 20 Citibank is notorious for its illusory presence 21 in the very neighborhoods their organizations 22 serve. 23 We understand that the proposed 24 merger -- and the bank's public relation 25 efforts surrounding it -- results in sometimes . 173 1 2 even unspoken pressure on groups to register 3 with regulators. The situation we find at this 4 public meeting is problematic and disturbing, 5 because -- correct me if I'm wrong -- every 6 single person and organization that testified 7 on behalf of the merger or the proposed merger 8 is a beneficiary of Citibank, and in a few 9 instances Travelers. 10 We also request that you ask each 11 panelist, as part of his or her testimony, 12 first, to disclose all benefits received from 13 Citibank and Travelers, and, second, to 14 indicate whether or not he or she was asked to 15 testify on behalf of the application or in 16 favor of the application. 17 Task force members have been 18 flabbergasted by Citicorp and Travelers' $115 19 billion commitment, which dedicates more than 20 half of the ten-year pledge to student loans, 21 credit cards and consumer finance, making the 22 commitment among many local groups a farce. 23 The task force has also been, since 24 its inception, greatly concerned about the 25 banking industry for communities and for the . 174 1 2 CRA. In the instance of the proposed 3 Citigroup, we see numerous contradictions. 4 Citigroup would constitute an enormous 5 concentration of economic and political power, 6 with both companies working to reduce their 7 on-the-street operations, and instead using 8 their networks to cross-market products. By 9 definition, the proposed entity is too big to 10 address local community needs. We have already 11 seen Citibank limiting its presence in 12 low-income communities. 13 One part of the -- well, these things 14 have been said and I hear the beeper. 15 We urge the Federal Reserve Board to 16 hold off on deciding this application as long 17 as the transaction is illegal. We also request 18 that you ensure that Citicorp and Travelers are 19 not improperly withholding information from the 20 public by improperly deeming material 21 confidential, and that the public is included 22 in all relevant communications. 23 We take for granted that Citicorp and 24 Travelers will push for all they can get. It 25 is up to the Federal Reserve Board to do what . 175 1 2 is right. 3 MR. LONEY: Thank you, Ms. Ludwig. 4 Mr. Zinner. 5 MR. ZINNER: I run the foreclosure 6 projection project for seniors at South 7 Brooklyn Legal Services. We represent 8 low-income seniors who have been ripped off by 9 high-rate finance companies, and in this 10 capacity I see daily the effects of redlining 11 and reverse redlining on low-income 12 communities. 13 I have come here this morning to 14 register my absolute opposition to the 15 Citicorp-Travelers merger. This opposition is 16 based on a number of reasons, but in the short 17 amount of time given this morning, I am going 18 to focus on one. 19 This would be the record of the two 20 companies in low-income communities. You have 21 heard a lot of testimony this morning about 22 Citicorp's record of -- Citibank's record of 23 lending and low-income communities. What I am 24 going to do is focus on the Travelers Group. 25 Now, it is hard to get information . 176 1 2 about Travelers' record of underwriting in 3 low-income communities because Travelers is not 4 forthcoming with that information, and there is 5 no legal requirement that they provide it. 6 There is a requirement in five states that 7 insurance companies provide zip code data of 8 their underwriting. In one of those states, 9 Massachusetts, there was a study done by the 10 Massachusetts Affordable Housing Alliance in 11 which Travelers was found "fair poorly in 12 anti-regulatory ranking." In fact, it had the 13 worst record of any of the insurance companies 14 in the state. 15 You heard testimony from ACORN this 16 morning about Travelers' agent location. 17 Again, 71 percent, just in New York, 71 percent 18 of the agent offices are located in communities 19 that are over 85 percent white, and of the 109 20 agent offices in the New York metropolitan 21 area, only 20 are in New York City; almost all 22 of those cluster around the two Manhattan 23 business districts. 24 There was recently two Fair Housing 25 complaints filed with HUD regarding Travelers' . 177 1 2 redlining practices. The complaints found that 3 Travelers maintains policies and practices that 4 serve to discriminate against low-income 5 communities and minority communities in the 6 provision of home owner's insurance, using such 7 policies as minimum policy values, again agent 8 location, disparate treatment of low income and 9 minority -- low income and minority people 10 seeking insurance, higher rates in low-income 11 communities, pricing their home owner's income 12 products out of low-income markets and the 13 markets in minority communities, limiting 14 replacement coverage on older homes, using 15 credit to determine eligibility, and the list 16 goes on. 17 In other words, these comprehensive 18 studies, using testers and research, found that 19 Travelers systematically had policies and 20 practices that served to discriminate against 21 low-income and minority communities. 22 Now I raise this issue in particular 23 because Citicorp and Travelers have been 24 touting consistently in the press, or 25 consistently, publicly, this one-stop shopping. . 178 1 2 Really what this one-stop shopping is is a 3 two-tier shopping system, in which affluent 4 white communities are privy to conventional 5 Citigroup products, potential Citigroup 6 products, in which low-income and minority 7 communities are, in effect, only given access 8 to inferior and higher cost products. 9 We haven't heard a lot of testimony 10 today about Primerica Financial Services. In 11 fact, Primerica Financial Services is the real 12 profit engine of the Travelers Group. 13 Primerica Financial Services has its roots in 14 the AO Williams Organization, which was a very 15 controversial evangelical-type pyramid scheme 16 in which lots of high-cost term insurance was 17 pawned off on low-income and middle-income 18 communities. Now the AO Williams Organization 19 has become Primerica, and now Primerica is part 20 of the Travelers Group. 21 What Primerica Financial Services 22 does is it uses this part-time army of very, 23 very loosely-regulated salespeople to push the 24 high-price term insurance, often replacing cash 25 value policies with high-price term insurance . 179 1 2 that is more expensive than most term insurance 3 that is in the market. They use exaggerations, 4 misrepresentations, to push these products, 5 particularly in low-income and minority 6 communities, in communities where there are a 7 lot of immigrants, in communities where there 8 are less-sophisticated consumers. 9 This is very important to note 10 because these are the same communities in which 11 Travelers, in their insurance practices, are 12 redlining. In other words, this is not 13 one-stop shopping. 14 What is happening is that Travelers 15 is offering conventional home owner's insurance 16 in affluent white communities and offering 17 high-priced -- in fact, aggressively marketing 18 through this sort of evangelical-pyramid 19 scheme -- high-priced term insurance in 20 low-income communities. 21 I am going to try and rush through, 22 but I want to mention one other important point 23 before I close. 24 Again, we haven't heard any testimony 25 today about Commercial Credit Corporation. . 180 1 2 That is an entity of the Travelers Group. 3 Commercial Credit Corporation primarily works 4 in what is called the BC&D, or subprime market, 5 providing low equity loans in a low-income 6 community. Home equity loans are extremely -- 7 when compared to Citibank's conventional loans 8 are very high closing costs, very high rates 9 and, basically, only appeal to people who are 10 desperate for credit. In fact, companies that 11 provide high rate loans produce -- do so in 12 communities that have been redlined by 13 conventional banks. 14 It is a vicious cycle, because when 15 communities are redlined by conventional banks 16 they have to turn to high-rate lenders when 17 they need credit. Because they are turning to 18 high-rate lenders, the default rates are 19 higher, and then the conventional banks have an 20 excuse to redline them. 21 This type of high-rate lending that 22 Commercial Credit does can often lead to 23 foreclosure, if abusive, and, in fact, the 24 Primerica Financial Services is selling 25 Commercial Credit loans in the billions of . 181 1 2 dollars using this completely, 3 loosely-regulated sales force with the same 4 sort of AO Williams evangelical fervor. 5 Again the data shows, and this data 6 will be submitted with a comment that 7 Commercial Credit does high-rate lending in the 8 same communities that Citibank has been 9 redlining. 10 I will just sum up in saying there is 11 a great danger in this merger. Basically what 12 could happen is Citibank -- and this is borne 13 out by the record of the two companies -- 14 Citibank would actually have a profit incentive 15 to redline low-income communities because this 16 would fuel the market for high-rate lending, 17 and this is particularly dangerous because the 18 engine for marketing Commercial Credit loans is 19 an unregulated pyramid scheme, that I have 20 discussed before. 21 Again, the two corporations have 22 given no indication that they won't take full 23 advantage of any profit opportunities that take 24 place even when they encompass taking advantage 25 of low-income communities. . 182 1 2 So, again, I'd like to register my 3 absolute opposition to this merger. 4 MR. LONEY: Thank you. 5 I have a couple of questions. 6 Ms. Botein, did I understand you to say that 7 Citicorp has made no loans, no mortgage loans, 8 in the New York City area? 9 MS. BOTEIN: No multifamily. I was 10 talking about permanent multifamily direct 11 loans, which is the kind of housing that most 12 people, as I said, of all income levels live in 13 in New York City. They have made those loans 14 through intermediaries by giving money to large 15 housing intermediaries. 16 MR. LONEY: I got that part. When 17 you say the New York City area, how far -- 18 MS. BOTEIN: The MSA. 19 MR. LONEY: Mr. Silverman and, I 20 think, Ms. Botein raised concerns about getting 21 information from Citicorp and Travelers. What 22 kind of information have you asked for and not 23 gotten? 24 MS. BOTEIN: I am going to turn the 25 mike over to Mr. Silverman because he has kind . 183 1 2 of been designated the point person on that 3 issue. 4 MR. SILVERMAN: I regret to say that 5 I don't have the list with me of which things 6 we asked for. Some of it was, I believe, 7 deposit information that Citicorp didn't turn 8 over; all kinds of information from Travelers. 9 Really nothing that we asked for from Travelers 10 did we get back. To a certain degree of data, 11 we didn't get information on what loan services 12 are offered at individual banks from Citicorp. 13 Off the top of my head, I can't remember. 14 MS. BOTEIN: One of the things I want 15 to point out is we have copied the Fed on all 16 of our correspondence to Citicorp and 17 Travelers, so you should have our letters. 18 The way that -- we didn't hear any 19 response for a long time, and then we just kind 20 of were deluged with boxes and boxes of papers, 21 of which was completely, completely 22 unresponsive to our request. But then, you 23 know, we had all these boxes stacked up in our 24 offices and we had to spend time, of which we 25 don't have much, and research, of which we have . 184 1 2 even little, kind of sifting through. And the 3 letter said that some of the information you 4 requested is in here, find it. 5 So we were kind of put in the 6 position of sifting through this material to 7 try to find pieces of it that might be 8 responsive to our request. 9 MR. SILVERMAN: Then we wrote again, 10 and cc'd the Fed, and said this is what we 11 didn't receive. Almost everything from the 12 initial letter was duplicated in the second. 13 Just yesterday I got some partial 14 response from Citicorp, not to the rest of it, 15 and still almost nothing from Travelers. So we 16 were concerned about that. 17 MR. LONEY: Thank you. 18 Any other questions from the panel? 19 If not, it is very interesting. We thank you 20 for coming.
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