Consumers Union calls on the Federal Reserve Board to
Protect Consumers by Blocking Merger of Citicorp-Travelers
WASHINGTON - The Citicorp-Travelers merger circumvents a clear prohibition in the law against mergers between insurance companies and banks and the Federal Reserve Board should reject the merger on those grounds, according to Consumers Union.
However, if the Board approves this merger regardless, consumers' interest must be put front and center, the group added. "The Board must lock in the elaborate promises of cost savings and ensure consumers and communities reap some benefit from this massive consolidation." said Mary Griffin, counsel with the Washington Office of Consumers Union. These protections include:
- Compliance with Protections Against Deceptive and Abusive Sales Practices: Study after study indicates that there is confusion, often due to the misleading tactics of banks, about whether insurance and securities products are FDIC-insured or subject to risk. To combat these problems, the Board should require compliance with measures such as disclosure of non-FDIC status and the risk of loss of principal on some products. If consumers lose money because the company or its affiliates mislead or deceive them, they should be able to recover their losses from the company.
- Privacy Protections: Financial privacy is a priority concern for consumers. Before Travelers and Citicorp can share information about their millions of customers, they should be required to first get the consent of their customers.
- Affordable Banking Services, including Life-line Accounts: Millions of Americans are getting squeezed by higher bank fees and are finding it harder to maintain the increasing minimum balances to avoid monthly charges. One-half of American families, or 48 million households, keep $1,000 or less in their checking accounts and 12 million American families do not even have an account. If this merger is to benefit these consumers, the companies must commit to not increase current fee levels and minimum balance requirements, or to introduce new fees on existing products or services for a reasonable period of time and provide life-line accounts at all banks in all States.
- Cost Savings to be Passed onto Consumers: To make sure consumers actually benefit from the merger, a significant portion of the projected benefits in cost-savings for the first five years after the merger should be set aside to increase access to banking services and credit for low-income consumers.
- Commitment to Communities: The Fed must include CRA commitments as part of the approval, with ongoing oversight of the commitments. The proposed commitment by these companies fall short of the mark. To be meaningful for low income consumers and communities, CRA dollar goals must be tied to specific programs, must target underserved groups, and most importantly must be part of a detailed business plan to reach underserved communities with products that are designed to meet the needs of those communities.
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