## Corporate Decision #2000-21

**December 2000**

**DECISION OF THE COMPTROLLER OF THE CURRENCY ON THE NOTICE BY CITIGROUP
INC. OF ITS INTENT TO ACQUIRE A CONTROLLING INTEREST IN ASSOCIATES
NATIONAL BANK (DELAWARE), NEWARK, DELAWARE**

**OCC CONTROL NUMBER 2000-ML-11-0001**

**NOVEMBER 30, 2000**

**[Introduction]{.underline}**

On September 18, 2000, Citigroup Inc. ("Citigroup") filed with the
Office of the Comptroller of the Currency (OCC) a Notice of Change in
Bank Control pursuant to the requirements of 12 U.S.C. 1817(j) and 12
C.F.R. 5.50 with respect to Associates National Bank ("Associates NB").
(The Notice, as supplemented by additional material filed with the OCC
November 7, 17, and 28, 2000, is referred to herein as the "Notice.")
The Notice was prompted by Citigroup's planned acquisition of Associates
First Capital Corporation ("AFCC"), a diversified, multinational company
engaged in consumer, commercial and lease financing and insurance with
\$93 billion in total assets as of September 30, 2000. Associates NB, a
\$493 million asset, wholly owned subsidiary of AFCC, is an insured
limited purpose bank engaged in credit card issuance and lending and
represents approximately one half of one percent of AFCC's total assets.

The OCC recognized the Notice as technically complete as of September
18, 2000. As required by regulation, notice of the filing was published
on September 15, 2000 initiating a twenty-day public comment period that
expired on October 4, 2000. As discussed in detail below, the OCC
received numerous public comments and requests for public hearings on
the proposed transaction. In response to requests to extend the comment
period, we extended the comment period until October 18, 2000. However,
the OCC has continued to accept comments from the public subsequent to
the close of the comment period. Also as discussed in detail below, the
OCC did not conduct public hearings. On November 16, 2000, the OCC
extended the Notice's review period by thirty days to permit an adequate
review of all relevant issues and public comments.

The OCC's role in reviewing a notice under the Change in Bank Control
Act ("CBCA") is limited by statute and pertains only to Associates NB,
not to AFCC. The CBCA provides specific grounds under which an agency
may *disapprove* a proposed acquisition. The CBCA imposes a statutory
timeframe of 60 days for consideration of a notice with the discretion
to extend the review period 30 more days. The review period may be
extended two additional periods of not more than 45 days each in limited
circumstances. If the agency does not disapprove the notice on the basis
of one of six factors within the statutory timeframe, the acquisition
may proceed. Thus, the review process and standard under the CBCA are
different from other corporate applications involving acquisitions and
mergers. Notably, the Community Reinvestment Act (CRA) does not apply to
CBCA notices.

**[Disapproval Factors]{.underline}**

The specific factors for disapproving any notice of Change in Bank
Control and our findings with regard to each factor relative to
Citigroup's Notice are as follows:

1\. [The proposed acquisition of control would result in a monopoly or
would be in furtherance of any combination or conspiracy to monopolize
or to attempt to monopolize the business of banking in any part of the
United States]{.underline}.

See discussion under #2 below.

2\. [The effect of the proposed acquisition of control in any section of
the country may be substantially to lessen competition or to tend to
create a monopoly or the proposed acquisition of control would in any
other manner be in restraint of trade, and the anticompetitive effects
of the proposed acquisition of control are not clearly outweighed in the
public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served]{.underline}.

Consumer credit card services are the sole business of Associates NB and
are a significant line of business engaged in by Citigroup. Credit card
services encompass the marketing and issuance of credit cards, extension
of credit to card holders, and the processing of credit card
transactions. Associates NB and Citigroup subsidiaries also securitize
their card receivables and subsequently service those portfolios for
third parties.

The OCC and the Federal Reserve Board have recognized that the market
for credit card services is national in scope. Credit card companies
compete in soliciting and serving customers throughout the United
States. This national market is highly competitive and unconcentrated
and will remain so if the proposed acquisition of Associates NB is
consummated. The nationwide population of credit card issuing depository
institutions is extensive, and there are numerous alternative card
lenders in the national marketplace. As a result, the acquisition of
Associates NB by a direct competitor is not viewed as monopolistic or
significantly anticompetitive.

As further evidence of the absence of a significant impact on
competition, the Federal Trade Commission posed no objection to
Citigroup's Hart-Scott-Rodino notice for the overall acquisition of AFCC
which encompasses not only Associates NB but other AFCC owned credit
card lending banks.

Accordingly, we have concluded that Citigroup's acquisition of
Associates NB will not create a monopoly or have a significantly adverse
effect on competition among insured depository institutions.

3\. [The financial condition of any acquiring person is such as might
jeopardize the financial stability of the bank or prejudice the
interests of the depositors of the bank]{.underline}.

Citigroup is an \$805 billion diversified financial holding company
which operates on a global basis and is subject to oversight by numerous
regulators. Its lead bank, Citibank, N.A., has assets of \$369 billion,
total risked-based capital of \$36 billion. In the most recent
examination, the OCC found the bank to be well-capitalized and
well-managed. Based upon our supervisory knowledge of Citibank, N.A., of
the other national bank subsidiaries of Citigroup, and of Citigroup, we
have concluded that Citigroup's financial condition would not jeopardize
the stability of Associates NB or prejudice the interests of its
depositors.

4\. The competence, experience, or integrity of any acquiring person, or
of any of the proposed management personnel, indicates that it would not
be in the interest of the depositors of the bank, or in the interest of
the public, to permit that person to control the bank.

Based upon all the information in the record and our supervisory
experience with the management of Citigroup in connection with the
operation of Citibank, N.A., and the other national bank subsidiaries of
Citigroup, we have concluded that the competence, experience, and
integrity of Citigroup does not indicate that it would be contrary to
the interests of the depositors of Associates NB or the public, for
Citigroup to control Associates NB.

5\. [An acquiring person neglects, fails, or refuses to furnish the OCC
all the information it requires]{.underline}.

Citigroup has provided all requested information.

6\. [The OCC determines that the proposed transaction would result in an
adverse effect on the Bank Insurance Fund or the Savings Association
Insurance Fund]{.underline}.

Based on Citigroup's financial and managerial resources noted above, we
have concluded that Citigroup's acquisition of Associates NB would not
result in an adverse effect on the deposit insurance funds.

**[Summary of Comments Received and Citigroup's Response]{.underline}**

During the course of our review of the Notice, the OCC received over 150
comment letters from community organizations, individuals, and members
of Congress raising numerous concerns in connection with the broader
transaction of which this application is a small part. Among the most
frequently cited concerns were: AFCC and Citigroup's bank and non-bank
subsidiaries engage in predatory lending practices; AFCC and Citigroup's
subprime subsidiaries actively market their high-cost loans to low- and
moderate-income people, areas, and minorities; Citibank, N.A. and
CitiMortgage branches are disproportionately located in affluent,
non-minority areas whereas CitiFinancial (Citigroup's nonbank subprime
subsidiary) and AFCC'S branches are located predominately in low- and
moderate-income and minority areas; Citigroup subsidiaries have a record
of violating certain laws; and Salomon, Smith and Barney, a Citigroup
subsidiary, is engaged in financing, underwriting, and securitizing
loans by subprime lenders. Many of the comments received expressed
concerns with the "Needs to Improve" CRA rating of Associates NB and the
numerous lawsuits filed against AFCC and its subsidiaries, including
Associates NB.

Citigroup stated that it recognized the importance of the public
concerns and voluntarily pledged in its written submissions to take
certain actions to improve the lending policies and procedures
applicable to its consumer finance operations. In particular, Citigroup
stated that it is committed to ensuring that all customers, including
low- and moderate-income and minority individuals, and those that live
in low- and moderate-income and minority areas, have expanded access to
lower cost prime credit products. During the review period, Citigroup
met with numerous community organizations and legislators throughout the
nation. As a result of these discussions, Citigroup indicated that it
would implement several "Initiatives" within its consumer finance real
estate secured loan business, which is primarily conducted through
CitiFinancial, including the following items: [^1]

-   [Test a "referral up" program in four states before introducing a
    nationwide program]{.underline}. Under the pilot program, a prime
    credit borrower that applies for a loan product at a Citigroup
    subprime affiliate office will be "pre-qualified" for a prime loan
    and provided information on to apply for such a loan through other
    Citigroup subsidiaries.

-   [Introduce new lending programs]{.underline}. One program (similar
    to Associates' "Freedom Loan") will reward a borrower with timely
    payments by granting interest rate reductions. Another program
    (called the "Graduation Loan Program") will offer customers who
    achieve a prime credit status the option of refinancing into a
    conventional real estate secured loan.

-   [Offer the option of monthly premium, single premium, and no credit
    life insurance]{.underline}. CitiFinancial will also provide
    consumers a "user-friendly" means of canceling single premium credit
    life insurance and related disclosures.

-   [Offer flexibility to a borrower to choose a product with or without
    a prepayment fee]{.underline}. CitiFinancial also will reduce from
    five years to three years the term during which prepayment fees will
    be payable on its loans, unless a shorter period is required by
    state law.

-   [Prohibit balloon payments and negative amortization]{.underline}.
    CitiFinancial will continue to prohibit balloon payments and
    negative amortization in loans it originates and will extend this
    prohibition to loans from brokers. In addition, CitiFinancial will
    prohibit the refinancing of below-market rate loans by non-profits.

-   [Test a limitation on broker fees]{.underline}. Under a pilot in two
    states, CitiFinancial will cap lender and broker fees at 3% and
    eliminate prepayment fees.

-   [Implement procedures to review home foreclosure]{.underline}.
    CitiFinancial will establish a unit specifically trained to review
    pending and potential foreclosure actions and to take other action
    as it deems appropriate such as modifying the loan terms, refunding
    points or credit life insurance premiums, and deferring payments
    until the borrower is able to resume payments.

-   [Review and revise existing CitiFinancial compliance
    programs]{.underline}. This review will include fair lending and
    compliance and examination policies and procedures in order to
    identify improvements and enhancements. CitiFinancial will also
    introduce an independent mystery shopper program beginning in
    December 2000 at all CitiFinancial offices and beginning in 2001 at
    all former Associates offices.

-   [Reporting to Credit Bureaus]{.underline}. Citifinancial also stated
    it will provide information on customers' payment records to credit
    bureaus to enable subprime borrowers to benefit from improvement in
    their credit performance.

Although the OCC does not supervise the activities of CitiFinancial,
Citigroup has pledged in the Notice that it will report to the OCC on a
periodic basis the progress of CitiFinancial in implementing these
initiatives. The OCC will retain regulatory authority over Citigroup's
national banking subsidiaries, including Citibank, N.A., and Associates
NB and certain subsidiaries of those banks. The OCC will take the
comments submitted in connection with this Notice into consideration
where they are relevant to the OCC's evaluation of the performance of
Citibank, N.A. and Associates NB under the Community Reinvestment Act
(CRA) and when reviewing corporate applications involving those banks
that are subject to CRA.

**[Request for Hearings]{.underline}**

Many of the commenters requested the OCC to extend the 20-day comment
period and to hold public hearings. On October 4, 2000, the OCC extended
the comment period by two weeks, to October 18, 2000. We also extended
the review period an additional 30 days and continued to accept
comments.

While neither the CBCA nor our regulations provide for public hearings
on notices filed under that Act, the OCC did carefully consider whether
to conduct a public hearing. One significant factor the OCC considers in
determining whether to hold public hearings on filings that are subject
to hearing provisions is whether hearings are needed to establish a
sufficient record upon which it can make an informed decision. In
connection with this Notice, an OCC official participated on the panel
at the public meeting conducted by the New York State Banking Department
on November 10, 2000. The OCC also reviewed the transcripts of that
meeting and of the meetings held by state authorities in South Dakota
and Missouri.

A number of community-based organizations also contacted the OCC to
provide additional perspectives on their concerns. To follow-up on
issues raised in connection with its review, the OCC by letter dated
November 16, 2000, requested Citigroup to clarify: how it, through its
marketing, its bank and thrift branches, its other office locations, and
other procedures, offers prime and subprime products to low- and
moderate-income and minority communities; the types of disclosures that
will be made available to customers in connection with the financing and
sale of single premium life insurance; and the limitations on points for
refinanced and broker-sourced loans.

Based on the information received and available to the OCC from all
sources as noted above, we have determined that a record of the issues
that must be evaluated under the applicable review standards has been
fully developed and that hearings would not add measurably to the
relevant information already received. Accordingly, the OCC has
determined not to conduct public hearings in connection with this
Notice.

**[Conclusion]{.underline}**

Based upon the Notice filed by Citigroup, and for the reasons set forth
above, we do not object to the acquisition of Associates NB by Citigroup
under 12 U.S.C. 1817(j).

**/s/**

Julie L. Williams

First Senior Deputy Comptroller

and Chief Counsel

Date: [**11-30-2000**]{.underline}

[^1]: Citigroup Inc.'s initial response dated November 7, 2000 was
    supplemented by additional clarifications on November 17, 2000 and
    November 28, 2000. Those three letters contain a complete listing of
    Citigroup's initiatives whereas this decision document contains only
    a partial listing. Copies of Citigroup Inc.'s responses are
    currently available on the OCC's Website (go to: www.occ.treas.gov).