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Citigroup Must End Mandatory Arbitration

Monday, September 20, 2004

A broad coalition of civil rights and consumer groups calls on Citigroup to end the abusive practice of requiring borrowers to submit to mandatory arbitration to resolve complaints on home loans in order to make the "best practices" announced by Citigroup today a reality.

The groups calling on Citigroup to eliminate mandatory arbitration in subprime mortgage loans include:

AARP
Leadership Conference on Civil Rights
NAACP
Consumer Federation of America
National Association of Consumer Advocates
National Consumer Law Center
Consumers Union
US Public Interest Research Group
National Fair Housing Alliance
California Reinvestment Committee
Center for Responsible Lending

"Homeownership represents a large percentage of the wealth held by minority families in the United States. If a lender prohibits borrowers from protecting their homes and family wealth in an open and accessible court of law, then the effect of any voluntary 'best practices' will be questionable", said Wade Henderson of the Leadership Conference on Civil Rights. "Access to the courts has been essential to securing civil rights in this country and mortgage contracts that force homeowners into a second-class justice system are unacceptable."

Chris Hansen, associate executive director of AARP, said, "Mandatory arbitration clauses undermine hard won consumer protections by barring homeowners from obtaining judicial scrutiny of their loans."

Hilary Shelton, director of the Washington Bureau of the NAACP, said, "If predatory terms like discriminatory prepayment penalties and unnecessary fees are the bricks of the predatory lender's house, mandatory arbitration is the cement that holds it together. We ask that Citigroup show real courage as it has done in the past in standing up for the rights of African-Americans and all borrowers in demanding this practice be stopped."

"While Citigroup has made some improvements in their 'best practices,' their statement is meaningless as long as it continues to deny consumers the ability to enforce these promises in the American justice system," said Ira Rheingold of the National Association of Consumer Advocates. "The continued use of mandatory arbitration clauses, while proclaiming 'best practices' is merely a cynical attempt by lenders to avoid accountability for their actual practices," he said.

"From mortgage loans, to mobile homes to managed care, mandatory arbitration has become an ever-present and unfortunate fact of life for American consumers," said Travis Plunkett, legislative director of Consumer Federation of America.

Citigroup's failure to stop requiring mandatory arbitration in its subprime loans puts it out of step with Freddie Mac and Fannie Mae, the largest buyers of home loans in the country, and with many of the largest mortgage lenders in the country, including Ameriquest, New Century, Option One, Washington Mutual, and Bank of America.

Citigroup has made significant strides in cleaning up the Associates – previously one of the nation's worst predatory mortgage lenders. Citigroup purchased the Associates in 1999. Citigroup has greatly reduced the number of abusive home loans that were being generated by unscrupulous mortgage brokers. Today's announcement that Citigroup will not charge borrowers more than 3% in upfront fees and will limit prepayment penalties is a very positive step, and would be cause for celebration were it not for Citigroup's failure to end forced arbitration in its subprime mortgage loans.

"If Citigroup wants to be considered a responsible lender, it cannot continue to insist on a private justice system that renders legal protections meaningless," said Margot Saunders of the National Consumer Law Center.

Each day, many Americans unknowingly sign loan contracts containing mandatory arbitration clauses that deny them access to justice by:

  • imposing high costs to the consumer, in terms of filing fees and the additional expense of arbitration proceedings;
  • allowing arbitrators, who may not have proper training and are often selected by or have repeated financial connections with the lender, to decide complicated financial cases without allowing the borrower a right to appeal;
  • limiting the availability of counsel and other traditional procedural protections;
  • benefiting unscrupulous lenders that have used arbitration to handle disputes in secret, avoiding an open and public day in court that would expose unfair lending practices to the public at large.
Inclusion of mandatory arbitration clauses in subprime home loans has been especially pernicious where it disproportionately puts homes at risk for elderly, low-income, and minority families.

Contact: Sharon Reuss at 919-313-8527 or sharon.reuss@responsiblelending.org