Large financial institutions acquire smaller competitors to improve their bottom lines, not, as the glitzy advertising suggests, out of a neighborly desire to make life better for consumers. Though economies of scale theoretically could generate lower fees for consumers, one sure result of Citigroup's proposed $5.8-billion takeover of California Federal Bank's parent company would be fewer choices for people who need a home loan, a convenient cashier window or other financial services.
Federal regulators are unlikely to stop the nation's largest financial institution from acquiring Cal Fed, the nation's third-largest savings and loan. But the Federal Reserve Board should at least investigate community activists' claims that Citigroup has done relatively little in other states to help consumers in low-income neighborhoods that traditionally get shortchanged on banking services.
Activists use phrases like "pervasive anti-consumer practices" to describe Citigroup's involvement in needier neighborhoods. Citigroup sparked concern two years ago with its $30-billion purchase of Associates First Capital, the nation's largest sub-prime lender (a company that charges higher interest rates to make riskier loans). The Federal Trade Commission is seeking hundreds of millions of dollars on behalf of consumers with poor or limited credit histories who allegedly paid exorbitant fees for mortgages with Associates First Capital before Citigroup's acquisition.
