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June 11, 2008
FTC, FDIC Sue Subprime Credit Card Marketer, Banks In On The Game
Yesterday, the FTC filed a lawsuit "charging CompuCredit Corporation and its wholly-owned debt collection subsidiary, Jefferson Capital Systems, LLC, with deceptive marketing practices in selling credit cards to consumers in the subprime market."
Separately, the FDIC, using its own authority to enforce the FTC Act, filed parallel actions against CompuCredit and two banks that provided cover for the firm's practices by issuing its credit cards, while settling with a third bank. From the FDIC release: The enforcement actions seek orders that would correct the FTC Act violations, and provide restitution to consumers in the form of credits for certain fees and charges arising from the deceptive marketing practices. It is estimated that such credits will exceed $200 million. The restitution is being sought against CompuCredit, First Bank of Delaware, Wilmington, Delaware, and First Bank & Trust, Brookings, South Dakota. The FDIC is also seeking civil money penalties (CMPs) of $6.2 million against CompuCredit, and a total of $431,000 against First Bank of Delaware and First Bank & Trust.
The cards that CompuCredit issues are referred to by the National Consumer Law Center as fee-harvester cards. A card with a $300 limit might have a $100 or more application fee and numerous other fees, leaving a credit availability of as little as $53, according to the FDIC, which also results in the potential for instantaneous over-the-limit charges.
According to Jean Ann Fox of the Consumer Federation of America, a leading expert on predatory small loans, the complaints also involve ongoing payday loan-like practices. One of the defendants, for example, First Bank of Delaware, had been a "rent-a-bank" to payday lenders until the FDIC and other regulators dis-allowed that practice, yet, in the instant complaint, continued similar practices with "installment loans" issued in association with payday lenders over the Internet. The FDIC's complaint against FBD alleges these products violated the Electronic Fund Transfer Act, the privacy provisions of the Gramm-Leach-Bliley Act, the Equal Credit Opportunity Act, and other laws.
In an interesting sidebar, the Wall Street Journal notes today in a story by Robin Sidel called Card Fray Brushes Big Brands (pd. subs. req'd.) that: Long known for its "Everywhere You Want to Be" slogan, Visa Inc. and its powerful brand name have landed in an awkward spot: a federal crackdown on subprime credit-card practices.[... ] The story ponders the question: Why don't don't Visa (and Mastercard) police the use of their brand names and set minimum standards for banks to issue cards with their names on them?
It's a good question. Here are a few more: Why don't Visa and Mastercard protect consumers from identity theft better by holding firms that use their networks to higher security standards? Why don't Visa and Mastercard prohibit lengthy holds on debit card transactions that lead to other bounced checks and debits? Why don't Visa and Mastercard start making their imposition of interchange fees on merchants more transparent and more negotiable?
Posted by Ed Mierzwinski at June 11, 2008 08:04 AM
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