Public Meeting Regarding Citicorp and Travelers Group
Thursday, June 25, 1998
Transcript of Panel Three
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Public Meeting Regarding Citicorp and Travelers Group |
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7 MS. MC CALL: No. Thank you very
8 much for your contribution this morning.
9 Could I ask. Some of the folks who
10 missed testifying on panel two and are here,
11 could I call Glenn VanNostritch, Walter
12 McCaffrey, Peter Rivera and Dennis Walcott.
13 Why don't we start from left to
14 right, Mr. VanNostritch.
15 MR. VAN NOSTRITCH: Thank you. My
16 name is Glenn Van Nostritch and I'm research
17 director for public advocate Mark Green. He
18 was supposed to be on the 9:35 panel. As you
19 know there were a few delays and he had another
20 meeting he had to get to.
21 If you approve the Travelers Group
22 application you will be giving a green light to
23 the structuring of the bulk of the nations
24 financial services industry into a handful of
25 massive financial services conglomerates. I
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2 urge you to reject this application because
3 such restructuring would occur in the absence
4 of crucial laws to protect consumers and expose
5 taxpayers to substantial liability.
6 First, I'd like to talk about the
7 cross-marketing and de facto product tie-in
8 concern.
9 Although Citicorp and Travelers had
10 stated that the chief motivation is to
11 cross-market their wide array of financial
12 services and products, they haven't provided
13 you with any actual cross-marketing plan. They
14 said that these plans will quote unquote
15 develop over time. But since cross-marketing
16 presents serious consumer pitfalls it is
17 important to know now, not after you've reached
18 your decision, how Citigroup is going to
19 cross-market among its affiliates.
20 One of these pitfalls is product
21 tying -- the de facto requirement for a
22 customer buying one financial product to
23 purchase another at the same time. Consider
24 the position of someone applying for a car loan
25 from one Citigroup affiliate who is handed a
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2 credit insurance application to another
3 Citigroup affiliate.
4 It would be very understandable if
5 she believed that not completing the insurance
6 application would hurt her chances for a loan
7 approval, even if no one directly told her that
8 there was a quid pro quo.
9 The same holds true for the hopeful
10 home owner waiting word on a mortgage
11 application to get the call from Citigroup
12 insurance affiliate about applying for a
13 homeowners insurance. The resulting harm is
14 that the individuals might well have purchased
15 the insurance elsewhere at lower cost had they
16 not felt compelled to buy everything under the
17 Citigroup umbrella.
18 The applicant that says that as part
19 of it's cross-marketing will use quote unquote
20 relationship pricing in which discount is
21 granted if you buy a package of financial
22 products and that relationship pricing has
23 numerous consumer advantages such as
24 convenience and more personalized service.
25 Experience with Citibank's
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2 relationship pricing illustrates how it can
3 discourage comparison shopping and raise
4 consumer costs. According to the consumer bank
5 scorecard of 50 banks that is issued annually
6 by Mark Green, Citibank has consistently ranged
7 amongst the five most expensive banks in New
8 York City like services like checking accounts
9 and a six thousand dollar minimum balance of
10 free checking is far higher than it's major
11 competitors.
12 Recently Citibank had added mortgages
13 and other credit card products to this
14 relationship to reach a six thousand dollar
15 minimum. The down side of consumers is that
16 mostly Citibank's products including mortgage
17 and credit cards could be obtained somewhat
18 less expensive by shopping around and it's
19 deposit accounts pay less than most other
20 banks.
21 So even should a consumer get a
22 seemingly good deal on one Citibank product the
23 savings could easily be offset by high prices
24 for the other services. For instance, savings
25 from the free checking could be offset by the
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2 comparatively high annual finance charge in
3 most Citibank credit cards.
4 In short, cross-marketing as
5 encouraged by relationship bank pricing is
6 anti-competitive from shopping around for
7 better pricing.
8 Then there is the issue of product
9 tie-in. Last month Nations Bank paid a $7
10 million federal fine for misleading its
11 customers, many of them elderly people who have
12 been investing in federally insured CDs about
13 the risk of investing in mutual funds. This
14 case illustrates the dangers and temptations of
15 putting securities in banking businesses under
16 one roof. Yet common ownership every
17 securities and banking affiliates should only
18 increase the motivation to cross-market these
19 products.
20 Representative John Dingell has
21 proposed giving the SEC more power to regulate
22 brokerage activities in banks because current
23 protections are insufficient. The Travelers
24 Group acquisition of Citicorp would occur
25 without such necessary protection.
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2 Nationsbank is not an
3 isolated case. A May, 1996, study by the FDIC
4 found that more than one-fourth of the banks
5 surveyed failed to tell on-site customers that
6 products are not insured and 55 percent failed
7 to inform telephone customers.
8 Consumers regrettably are vulnerable
9 to misinformation and manipulation. A 1994
10 survey conducted for the American Association
11 of Retired Persons found that fewer than one in
12 five bank customers understood that products
13 such as mutual funds and annuities are
14 uninsured.
15 The board should not approve
16 Travelers application until new privacy
17 protections applying to financial services
18 conglomerates are enacted into law.
19 Primerica, Credit Corporation,
20 Citibank and Salomon Smith Barney possess
21 intimate, private information about tens of
22 millions Americans. Through loan applications
23 they know about the jobs many people hold, from
24 credit card records they know about recent
25 purchases, from mortgage applications they know
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2 the age and value of their residences, from
3 auto insurance files they know about driving
4 records, and from banking files they know if
5 there was recently a large deposit in an
6 account.
7 Travelers promised to adopt the quote
8 unquote opt-out system by which consumers
9 affirmatively indicate that they do not want
10 their personal information shared. Recently
11 one of serious problems the opt out method were
12 currently used such as the opt out disclosure
13 are buried in the middle or near the end of a
14 multi-page agreement.
15 A much better approach is to
16 affirmatively opt in to approve dissemination
17 of personal information among Citigroup
18 affiliates.
19 The rest of our testimony discusses
20 how taxpayers will be put on the line by such a
21 merger because of the dangers of under
22 regulation of insurance affiliates and the
23 inadequacy of the overall regulatory structure
24 for such a large multifaceted conglomerate.
25 Thank you.
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2 MR. LONEY: Thank you for your
3 consideration of our time restraints and we
4 will certainly put the rest of your testimony
5 in the record.
6 Before we go to Mr. McCaffrey I want
7 to introduce Barbara Kent from the New York
8 State Banking System.
9 MR. MC CAFFREY: Thank you very much.
10 I am counsel member Walter McCaffrey
11 representing the people of the 26th council
12 district in western Queens.
13 I come today with an experience in
14 dealing with Citibank borne not just during my
15 position as an elected official, but having
16 served as a chair of a community board in
17 western Queens and district chief of staff to a
18 member of the House of Representatives.
19 In 1985 Citibank originally came to
20 Long Island City with a proposal to build what
21 is now their fifty story headquarters in
22 Queens. The facility at that time was
23 obviously going to be something significantly
24 and dramatically different from that which is
25 in the community.
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2 Queens did not have such a skyline as
3 it has now. But Citibank came not to be in
4 Long Island City but rather to be part of Long
5 Island City. Through the process the bank
6 ended up agreeing readily to the request of the
7 community to participate in a whole host of
8 activities. For example, Citibank has set up
9 over the years an amenities package. The
10 amenities package that was agreed to by the
11 bank and developed in cooperation with the
12 community became in many ways quintessential
13 example of amenities packages not really in
14 this city but around the nation.
15 Programs for senior citizens,
16 programs for the youth in the community,
17 housing funds were all readily available and
18 there was a set period of time in which the
19 bank had a legal obligation to provide those
20 resources.
21 At the expiration of that period of
22 time, however, the bank could have walked away
23 and said wealth we have discharged our
24 responsibility but rather they chose to
25 continue that financial involvement with the
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2 community over the years without any sort of
3 obligation whatsoever.
4 The institution also as it was going
5 up was one of the first private construction
6 sites in the City of New York to aggressively
7 have an MBE, a minority business employee
8 enterprise component, and a WB, a woman
9 business enterprise component in the
10 construction phase, and that was something in
11 that period of time that was not seen really in
12 the private sector. It was something that had
13 been looked at and used in terms of development
14 of public projects.
15 So the bank over the years has had
16 that type of involvement. It is one of the two
17 institutions in the City of New York that has
18 really moved forward in the development in
19 terms of programs to deal with elder abuse.
20 Other banks in the city did not live
21 up to their obligation after it was pointed out
22 that the banking community generally had a poor
23 record. They stepped forward and aggressively
24 so. In terms of the ATM law in the City of New
25 York which is the toughest law in the United
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2 States, and having been the author of that, I
3 have to say that Citibank did not come into
4 that process dragging its heels but rather
5 aggressively moved, with only a few exceptions
6 of those members of the banking company. Sad
7 to save that the State of New York has tried to
8 gut that law. The fact of the matter is we
9 have seen that Citibank has been aggressive in
10 terms of customer safety and ATM.
11 I understand that we look at this in
12 a perspective of national context, but
13 certainly I want you to understand what the
14 context is in terms of the specific community.
15 We've heard testimony from people
16 today as to some policies but I wanted to give
17 you a specific example, and it would have been
18 very easy for that institution to come in to
19 use its power to be able to get approval and
20 not do anything for the community.
21 Matt Lee rightly points out that
22 there is uncertainty as to whether or not
23 federal law will change in terms of that which
24 has been considered a firewall for many years
25 in terms of financial institutions. But I
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2 think at the time in which it was passed we had
3 a much different type of financial institution
4 at hand.
5 Nearly 70 percent of the investment
6 and financial institutions at that time was in
7 banks. It is now down to under 30 percent. We
8 never saw the development of credit unions at
9 that time. We now see that and we see now
10 billions of dollars invested in the
11 metropolitan area in other institutions and
12 certainly on the national basis we see that the
13 credit union concept is something that has a
14 major impact now and as an alternative source.
15 I understand the position of our
16 distinguished public advocate in terms of
17 concerns, and there are legitimate concerns in
18 terms of privacy, but I think from the consumer
19 point of view we now see entities in the City
20 of New York who are banks that came from afar
21 for New York's customers who are now here. We
22 see that type of diversity, and, again we see
23 that type of competition and the competition is
24 out there.
25 Now, some consumers will choose not
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2 to be savvy and some will choose to be able to
3 watch very, very closely and to be able to make
4 competitive decisions. The fact of the matter
5 is I think with education out there that that
6 is something that can be addressed. So I would
7 suggest that this is a good proposal on
8 balance. It is not a perfect one, but it is
9 one which I think will benefit.
10 MR. LONEY: Thank you. Mr. Walcott.
11 MR. WALCOTT: Good morning to you. I
12 should say good afternoon probably to all of
13 you who are here since morning. You started
14 early.
15 I want to approach this both as
16 president of the New York Urban League as well
17 as a former member of the City of New York city
18 board of education and talk about the
19 opportunities that are presented before us
20 right now with this potential merger and I want
21 to focus on several items included in the
22 potential merger. One, taking a look at the
23 merged opportunities for investment in the
24 office of financial literacy, and creating the
25 advisers panel on financial literacy, also
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2 Citigroup initiative dealing with education
3 both at a student level and an elementary level
4 as well as middle and high school level.
5 Talk about the area of developing the
6 financial skills of young Americans and how the
7 Citigroup will be responsive in developing
8 that, and also talk about their public
9 awareness campaigns in trying to deal with both
10 the literacy and math initiatives within the
11 New York City public school system.
12 It is proposed that 25 million
13 dollars will be developed for the banking
14 education initiative making sure that children
15 regardless of their families' income become
16 computer literate. Also talk about the
17 development of the new technology that's being
18 proposed with the merger as well.
19 In addition to that, I want to talk
20 about the center for community development
21 enterprise that's being proposed with the
22 merger, and I think there are a lot of great
23 opportunities with the potential merger. One
24 of the other things that I think is extremely
25 important to talk about that I really have not
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2 heard dealt with at all this morning is the
3 corporate involvement on the part of the
4 leadership of both Travelers as well as
5 Citibank as well.
6 For example, Citibank vice-president
7 has become the newest member of the New York
8 City Board of Education on the Travelers side.
9 One of their members it's now on the New York
10 State board of regents. Former vice-president
11 of Citibank was a former president of the New
12 York City board of education who is now the
13 state comptroller of the State of New York.
14 So they have an active involvement as
15 far as making sure that they are involved as
16 corporate citizens as well, and I must be very
17 honest with you in that my own board treasurer
18 is a member of Travelers, as he has been I
19 think a very responsive Travelers person who
20 has been there for us.
21 We are one of those organizations
22 that do not receive monies from Citibank, not
23 because of Citibank. We just never approached
24 Citibank. So we are not there and here as a
25 result of Citibank as indicated earlier forcing
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2 nonprofits to be here. We're here because we
3 see a potential opportunity that will increase
4 the diversity in New York City as well as
5 opportunity for investment in the education of
6 New York City making our students brighter as
7 far as computer literacy and also getting into
8 the financial industry.
9 I thank you for this opportunity to
10 testify before you.
11 MR. LONEY: Thank you, Mr. Walcott.
12 Assemblyman Rivera.
13 MR. TRAYLOR: Good morning. My name
14 is Peter Rivera. I'm a member of the New York
15 State assembly. I represent the 76th assembly
16 district in the Bronx which is comprised of the
17 communities known as Parkchester, Castle Hill,
18 Fordham Road and westbound. The ethnic makeup
19 of my district is 35 percent Hispanic. 25
20 percent African American, 20 percent white.
21 My purpose here is to express my
22 opinion saying the Citibank my district in fact
23 was a district that was affected when Citibank
24 closed the branch that was the Parkchester
25 branch. However, the closure of that branch
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2 have very little adverse impact on my district
3 due in large part to the good work that
4 Citibank did in one, notifying the residents of
5 the district that they were closing the branch,
6 two, providing an ATM machine, three providing
7 alternative ways for the seniors in the
8 district to be able to get to the closest
9 available branch, and, four, the assistance
10 that Citibank gave to educate many residents of
11 my district to banking at home.
12 Citibank has always had a commitment
13 to the communities it serves, particularly to
14 the residents of the 76th assembly district.
15 It starts with the faces that greet you
16 whenever I visit one of their branches. As you
17 know the Hispanic community has become quite
18 sensitive as of late as a result of an episode
19 on Seinfeld and as a result of other articles
20 that have been written characterizing the way
21 that Hispanics are viewed on the media as
22 suspect rather than as potential purchasers.
23 However, the corporate responsibility
24 at Citibank has indicated that they really have
25 gone out and attempted to reach and attempted
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2 to hire people from every segment of the
3 communities that service New York City. It's
4 community development program have helped
5 tremendously in improving the quality of life
6 in the communities in which it has a strong
7 presence.
8 For example, the community
9 development program is a comprehensive strategy
10 that is built upon partnership with nonprofits,
11 government agencies and other strong financial
12 partners. In the 76th assembly district they
13 helped two major important programs that I want
14 to refer to.
15 One is NETS which works with senior
16 citizens and the other is the East Bronx Hunger
17 Program. The East Bronx Hunger Program is the
18 only food pantry in the east side of the Bronx
19 servicing approximately a half a million people
20 and sponsored basically by the churches in the
21 area. About two years ago they had a deficit
22 of $10,000 and if it wasn't for the assistance
23 of Citibank in trying to overcome that deficit
24 the East Bronx Hunger Program would have gone
25 out of business.
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2 Last year alone Citibank committed
3 one hundred fifty thousand dollars to community
4 development corporation for the creation of
5 affordable housing commercial stores and
6 community revitalization.
7 In the district that I represent this
8 type of commitment is truly important. The
9 76th assembly district is primarily populated
10 by low to moderate income families. These many
11 families deserve every opportunity to fulfill
12 dreams such as obtaining credit, owning a home
13 and starting their business.
14 Citibank has enabled many families in
15 my district to realize these goals. For
16 example, Citibank is the largest lender in
17 Parkchester here. My working close to
18 community groups after the Castle Hill branch
19 closed has been able to identify and meet the
20 needs of the community.
21 Just recently over one hundred
22 members of the Crossroads Congregation attended
23 Citibank seminars on budgets and home
24 ownership. The seminar was just one of the
25 many that Citibank offers on a regular basis.
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2 These have been offered in English and in
3 Spanish so as to meet the needs of every
4 consumer, Citibank has also consistently
5 created commitments to the community by paying
6 close attention to every detail that will make
7 it bond to the community stronger.
8 The staff at Castle Hill are deeply
9 committed to their community whether its
10 reading to third grade, through their read
11 aloud program or conducting clothing drives for
12 the less fortunate in our community.
13 Citibank has supported after school
14 programs. As a result I have contacted
15 Citibank right now because we hope to be able
16 to establish the first Internet cafe in
17 Parkchester due in large part through the
18 cooperation of Citibank. St. Helen's is a
19 small private group school that services for
20 the most part, parents have programs that allow
21 them to work with their assurance that their
22 children are taken care of in a safe and
23 nurturing environment.
24 Citibank has always positioned itself
25 as a leader in the area of technology with its
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2 plans for opening up a new state-of-the-art
3 electronic banking facility in the Bronx.
4 They will have the opportunity to
5 establish itself as an even stronger partner in
6 the community. Citibank uses its human
7 resources strength to invest time and
8 leadership to community groups and residents.
9 This past April I had an opportunity to
10 participate in a program called Christmas in
11 April, a project that Citibank has been a long
12 supporter. In the Christmas in April project
13 Citibank and I chose a house owned by a senior
14 citizen approximately 75 years of age who was
15 blind and who was living alone, and we cleaned
16 out the house. The cleaning up was done with
17 their employees. We cleaned out the house. We
18 took out all the garbage from the house. We
19 repainted the house. We put it in a new stove
20 and a new refrigerator.
21 You can see how it is from these
22 activities in my district and throughout the
23 entire Bronx that Citibank demonstrates its
24 pledge to provide access of the highest quality
25 and financial services and products and make
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2 these available to everyone regardless of where
3 they live or how much they make.
4 I look forward to continuing my
5 office's partnership with Citibank and I am
6 confident that we will be able to effecutate
7 positive changes in my district and throughout
8 the entire Bronx.
9 I thank you very much for your time
10 and attention and hope that the consideration
11 of all of this testimony that will be presented
12 here today will lead to the obviously
13 beneficial rewards that this merger will
14 provide.
15 MR. LONEY: Thank you. Any
16 questions?
17 MR. ALVAREZ: I have one question.
18 There has been a lot expressed by this panel
19 and earlier panels about protecting customer
20 information particularly. Are there any state
21 or local laws here that govern the sharing of
22 customer information and protect customer
23 information?
24 MR. MC CAFFREY: We in the City of
25 New York are precluded in terms of that. That
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2 is a function of the State and obviously you
3 would be able to have information readily
4 available as to the State.
5 If I can just indulge one other
6 thing, let me say that one of the assets that
7 Citibank did in a community that had no library
8 whatsoever built at the expense of two and a
9 half million dollars a library fully equipped,
10 turnkey, gave it over to the Queensborough
11 library system as part of the commitment to the
12 community. That was a fairly significant
13 contribution and I'd be derelict if I didn't
14 mention it.
15 MR. RIVERA: I'm not aware of any
16 specific section of state law that prevents,
17 I'm sure that it does, although I really can't
18 recite it.
19 MR. ALVAREZ: Mr. Van Nostritch.
20 MR. VAN NOSTRITCH: I believe one of
21 their motivations is to be able to share all
22 kinds of information among affiliates to
23 develop a large database on the customers so
24 certainly that is what they are planning to do
25 and apparently there is no law that can stop
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2 them from doing that.
3 MR. WALCOTT: If I can just make one
4 modification to my testimony, because normally
5 as a not-for-profit we always think of
6 receiving grants from corporations or
7 foundations. I do want to say with Citibank we
8 have recently established the New York Urban
9 League a cash reserve with Citibank and that
10 has been tremendously helpful to us.
11 I do want to modify my testimony to
12 say that while we never have pursued them for
13 any grants whatsoever or corporate support for
14 dinners, at the same time they have been very
15 helpful as far as the cash reserve, and that
16 will help us during emergency times if the city
17 council and the mayor are at odds at times and
18 holding up budgets for not-for-profit.
19 I do need to put that on the table.
20 That's been extremely helpful to an
21 organization like us.
22 MR. LONEY: Thank you. Any other
23 questions? We'll takes a ten minute break, and
24 reconvene at 10:30.
25 (Recess)
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