-- In one of the largest actions of its kind, federal regulators are seeking to recover an estimated $217 million in restitution and fines from credit card companies that officials say deceived subprime customers and left some of them deeper in debt.
The Federal Deposit Insurance Corp. and the Federal Trade Commission, in separate complaints filed Tuesday, said Atlanta-based CompuCredit ccrt and two partner banks — First Bank of Delaware and First Bank & Trust in Brookings, S.D. — failed to disclose fees and terms to subprime borrowers, who have blemished credit histories and often little experience with credit cards. A third bank, Columbus Bank and Trust, of Columbus, Ga., has settled with regulators and agreed to pay $10 million in fines and restitution.
Hundreds of thousands of subprime consumers across the nation could be eligible for reimbursement for credit card fees if money is recouped under these complaints, the agencies say.
The actions are the latest assault by regulators against aggressive credit card lending. The Federal Reserve recently proposed rules that would crack down on "unfair and deceptive" credit card practices. Meanwhile, state officials, such as New York Attorney General Andrew Cuomo, have investigated card offers sent to borrowers with spotty credit.
The FTC filed lawsuit Tuesday in the U.S. District Court for the Northern District of Georgia, alleging that CompuCredit "misled" consumers in marketing a credit card with a $300 credit limit. Borrowers were hit with up to $185 in upfront fees that reduced their available credit to as little as $115, the FTC says. The FDIC, in an enforcement action, levied similar charges against CompuCredit and its partner banks.
Regulators say that CompuCredit and its debt-collection unit, Jefferson Capital, also encouraged consumers with bad debt that lenders had written off to sign up for a new Visa credit card. When consumers did, they were instead enrolled in a debt-repayment plan and couldn't get the card until they paid off 25% to 50% of their debt, according to the complaints.
CompuCredit, in a statement, said the regulators' charges about its "past credit card marketing practices are untrue and without merit." The company said that despite its position, it had reached an "agreement in principle" to settle the matter but said this was derailed because regulators could not reach an agreement with First Bank of Delaware and First Bank & Trust.
First Bank of Delaware, in a statement, said it will "vigorously defend" itself against regulators' claims, which it calls "unfounded." David Waligoske, executive vice president of Fishback Financial, which owns First Bank & Trust, said the bank was still reviewing the charges and declined further comment.
CompuCredit, through brands such as Tribute and Salute, is one of the largest marketers of credit cards to subprime borrowers, says Andrew Davidson, vice president of Synovate Mail Monitor, which tracks these offers. In 2007, under the Tribute brand alone, CompuCredit sent out 34.2 million offers for credit cards, Davidson says.