CompuCredit Corp., a credit card issuer specializing in the subprime market, will provide $114 million in redress to settle deceptive marketing charges filed by the Federal Trade Commission and Federal Deposit Insurance Corp.
The bulk of the restitution is in credits to consumers, but $3.7 million will be paid in cash to cardholders whose balances are less than the credits they are due, according to the agencies.
In addition, the firm will pay a $2.4 million civil penalty, and has agreed to refrain from misrepresentations.
CompuCredit said that the settlement concerns practices from 2005 and earlier, and that it will not affect its existing marketing or service. The firm also stated that the deal will not have a “material impact” on its financial condition.
The FTC and FDIC filed separate actions last June.
According to the FTC, CompuCredit CompuCredit marketed credit cards, mostly via direct mail, under brand names like Aspire, Aspire A Mas, FreeedomCard, Tribute and Fingerhut Credit Advantage.
In one offering, a fee-based credit card with $300 limit, the firm charged consumers up to $185 in fees that it did not clearly disclose, leaving them with as little as $115 in available credit, the agency alleged.
Consumers with slightly higher credit scores were offered up to $3,250 in available credit, the FTC continues. But the marketer failed to clearly reveal that that half of that sum would be withheld for 90 days, and that the limit might be reduced based on an “undisclosed ‘behavioral’ scoring model,” the FTC continued.
In addition, Jefferson Capital Systems, a debt collection firm owned by CompuCredit, deceptively marketed credit cards as part of its debt collection, and engaged in abusive practices when conducting the latter, the FTC charged.
Consumers who responded were enrolled in a debt repayment plan and did not receive a credit card until they had paid up to 50% of their debt, the commission stated.
As part of the deal, CompuCredit will clearly disclose fees and restrictions affecting initial available credit. In addition, it will refrain from misrepresentations about available credit or its relationship with Jefferson Capital. The latter firm is prohibited from abusive practices.
“The settlement is a big win for consumers,” said Lydia B. Parnes, director of the FTC’s Bureau of Consumer Protection, in a statement. “When signing up for a credit card, consumers have the right to know the truth about the amount of credit they are getting and the cost of that credit up front.”
“We are pleased to have reached this settlement with the FDIC and the FTC in order to resolve their concerns regarding the company’s past marketing practices,” said David Hanna, CompuCredit’s CEO.
CompuCredit was one of three institutions hit with actions last June by the FDIC, the agency said. The others were First Bank of Delaware, which has also settled its case, and First Bank & Trust Brookings, FDIC continued.
In addition, Columbus Bank and Trust Co. settled with the agency prior to litigation, according to the FDIC.
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