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FDIC seeks 200 million in cardholder restitution
WASHINGTON (6/11/08)—The Federal Deposit Insurance Corp. (FDIC) Tuesday announced it is seeking more than $200 million in restitution from a credit card company and two FDIC-supervised banks to repay card holders for deceptive marketing practices. The FDIC said is has issued enforcement actions against CompuCredit Corporation, Atlanta, Ga. and two banks for allegedly marketing subprime credit cards in violation of the Federal Trade Commission Act (FTC Act) The FDIC said it settled with a third bank, Columbus Bank and Trust, Columbus, Ga., also involved with CompuCredit. The restitution is being sought against CompuCredit, First Bank of Delaware, Wilmington, Del., and First Bank & Trust, Brookings, S.D. The FDIC is also seeking civil money penalties (CMPs) of $6.2 million against CompuCredit, and a total of $431,000 against the two banks. The enforcements are in connection with CompuCredit's credit card solicitations for three general categories of Visa and MasterCard branded credit card products:
* A fee-based credit card that was marketed to consumers with low credit scores. The FDIC alleges that the solicitations failed to adequately disclose significant upfront fees and misrepresented the consumer's initial available credit. The solicitations appeared to offer credit cards with a $300 credit limit; however, consumers were immediately charged as much as $185 in inadequately disclosed fees, leaving them with as little as $115 in available credit, according to the bank regulator; * A card that offered "up to $3,250" in available credit to consumers with slightly higher credit scores. The FDIC alleges that CompuCredit failed to adequately disclose that only half of the consumer's credit limit would be available for the first 90 days. Additionally, the agency claims, CompuCredit failed to disclose that it would monitor consumers' purchases, and potentially reduce their credit limits based on undisclosed "behavioral" scoring models; and * A debt transfer Visa credit card marketed to consumers with charged-off debt. The FDIC alleges that the solicitations represented that the consumer's prior charged-off debt would be immediately transferred to the card and reported to consumer reporting agencies as paid in full. However, the FDIC charges, consumers who accepted the offer were actually enrolled in a debt repayment plan and did not receive a Visa card unless they paid 25% to 50% of their charged off debt over a 12-month period and for the few consumers who did so, the credit card they received had nominal available credit.
Separately, the FTC filed a parallel federal court action against CompuCredit. That lawsuit also names Jefferson Capital Systems, a subsidiary of CompuCredit, as a defendant for violations of the FTC Act and the Fair Debt Collection Practices Act (FDCPA), according to the FDIC announcement. Use the resouerce link below for more details.
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