Two financial services providers, Citigroup Inc. and HFC, will stop selling a controversial form of credit insurance that was packaged with mortgage loans.

"In the coming weeks, we are going to stop offering single-premium credit insurance on mortgage loans," writes Robert Willumstad, CEO of the consumer lending group of Citigroup's consumer finance subsidiary, CitiFinancial, in an employee memo dated June 28, 2001.

Willumstad says the product is "voluntarily purchased" and "provides important benefits to customers," but that meetings with government regulators, consumer groups, and the head of the United States Senate banking committee led to the company's decision to take single-premium credit insurance off the market.

And, on July 11, 2001, Household International, which does business as HFC and Beneficial, announced that it, too, would arrest sales of financed single-premium credit insurance.

HFC, another of the nation's largest consumer-finance companies, said it would begin making a fixed monthly premium credit insurance policy available to consumers who want it.

CitiFinancial will develop a credit insurance product with monthly premiums that stop when the term of the insurance expires. It also will offer the monthly premium coverage to consumers who already purchased single-premium coverage.

Single-premium financed credit insurance is typically sold with home loans by subprime lenders, companies that lend money to consumers with poor credit histories. The premium is paid in one lump sum, which is then financed along with the rest of the loan, to be paid off during the loan term. It is designed to pay off the mortgage if the borrower dies, becomes disabled, or loses his or her job before the term of the insurance expires.

Single-premium credit insurance is more expensive than regular life insurance or disability coverage, and consumer advocates charge that it is sold unfairly to consumers who do not need it, do not understand it, or believe they must purchase the insurance in order to obtain the loan. Although the coverage expires after a few years (usually five or fewer), consumers continue to pay for it for the life of the loan — and that, consumer groups say, forces borrowers to build equity more slowly and can add thousands of dollars to the total amount owed.