Markets Wired

CompuCredit Corporation, a company marketing Visa and MasterCard credit cards to consumers in the subprime credit market, has agreed to reverse fees charged to eligible consumers’ accounts to settle allegations that it violated federal law. It is estimated that the redress program will result in more than $114 million in credits to consumer accounts. Eligible consumers whose current balances are less than the amount of credits to be applied will receive an estimated $3.7 million in cash refunds.

In a federal court complaint filed in June 2008, the Federal Trade Commission alleged that CompuCredit engaged in deceptive conduct in connection with marketing credit cards. The FTC also alleged that Jefferson Capital Systems, LLC, a debt collection company wholly-owned by CompuCredit, engaged in deceptive conduct in marketing credit cards as part of its debt collection activities and engaged in abusive practices while collecting debts.

“This settlement is a big win for consumers,” said Lydia B. Parnes, Director of the FTC’s Bureau of Consumer Protection. “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.”

According to the FTC’s complaint, CompuCredit marketed credit cards, primarily through direct mail solicitations, under various brand names, including Aspire, Aspire A Mas, FreedomCard, Tribute, Imagine, Majestic, Aspen, Emerge and Fingerhut Credit Advantage. These cards generally fit into three categories:

Fee-based credit card with $300 limit. According to the FTC, CompuCredit marketed to consumers with subprime credit ratings a credit card with a purported $300 credit limit, using solicitations that stated certain up-front fees that did not apply. Rather than provide consumers with $300 of available credit, CompuCredit immediately charged consumers as much as $185 in fees that it did not adequately disclose in light of the representations made. These fees left consumers with as little as $115 in available credit.

Credit card with “up to $3,250” limit. As alleged by the FTC, CompuCredit marketed to consumers with slightly higher credit scores its credit card purporting to offer “up to $3,250” in available credit. CompuCredit failed to disclose, or failed to disclose adequately, that half of the available credit would be withheld for the first 90 days. CompuCredit also failed to disclose, or failed to disclose adequately, that for the first 90 days, the company would monitor consumers’ purchases, and might reduce their credit limit based on an undisclosed “behavioral” scoring model.

Debt-transfer credit card program. According to the complaint, CompuCredit and Jefferson Capital marketed a credit card to consumers with charged-off debt. CompuCredit and Jefferson Capital represented that the consumers’ old debt balance would be immediately transferred to the card and reported to consumer reporting agencies as paid in full. Consumers who accepted the offer, however, were immediately enrolled in a debt repayment plan and did not receive a credit card until they paid 25 percent to 50 percent of their charged-off debt.

In addition to requiring the reversal of fees, the orders with CompuCredit and Jefferson Capital:

• Require that credit card solicitations making representations about credit limits or available credit must disclose – equally clearly and prominently, and on the same page – fees and other restrictions affecting initial available credit.
• Include a broad prohibition against misrepresentations in the marketing of credit cards, including misrepresentations about the amount of available credit.
• Prohibit CompuCredit and Jefferson Capital from making any misrepresentation about the relationship between an offer or extension of credit and a debt repayment plan.
• Prohibit Jefferson Capital from engaging in abusive practices while collecting debts.

The Commission voted 4-0 to authorize staff to file the stipulated final order. The order was filed in the U.S. District Court for the Northern District of Georgia. Separately, the FDIC announced settlement of its parallel administrative action against CompuCredit. As part of its settlement with the FDIC, CompuCredit has also agreed to a civil money penalty of $2.4 million.

NOTE: Stipulated final orders are for settlement purposes only and do not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File No. X080047)
(CompuCredit Settlement)