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Sub-Prime Card Issuer Agrees to Settlement of $114 Million

The Federal Trade Commission (FTC), the nation's consumer protection agency, reported earlier today that Atlanta, Georgia-based sub-prime card issuer CompuCredit Corporation has agreed to a settlement in response to charges of unfair and abusive credit card practices.

The FTC filed a complaint in federal court in June 2008, alleging that CompuCredit Corporation used deceptive and misleading conduct in marketing, issuing, and servicing of credit accounts.

The sub-prime card issuer has agreed to reverse fees associated with their credit accounts to pay back at least $114 million in consumer credits. Consumers whose balances are less than the amount of the credit due will be given an estimated $3.7 million in cash refunds.

The FTC also charged the CompuCredit-owned Jefferson Capital Systems, LLC, a debt collection company, with using deceptive credit card marketing tactics as part of its debt collection activities, and of using abusive practices while attempting to collect 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.”

Credit cards marketed by CompuCredit include both VISA and MasterCard, and the card names were under a variety of brands, including Aspire, Aspire A Mas, FreedomCard, Tribute, Imagine, Majestic, Aspen, Emerge, and Fingerhut Advantage.

The FTC complaint stated that one of the misleading tactics used by the sub-prime card issuer involves advertising a card with a credit limit of $300 for consumers with poor credit scores. The company stated in their solicitations that certain up-front fees didn't apply, but failed to disclose $185 in fees that did apply. Card holders were immediately charged those fees upon opening their account, leaving them with only $115 in available credit.

CompuCredit also offered a credit card with a limit of "up to $3,250" for consumers with slightly higher credit scores, according to the FTC complaint. The FTC alleges that the card issuer did not adequately disclose that half of the available credit would be withheld for the first 90 days. Also inadequately disclosed was that during that 90 day period, the card issuer monitored the consumers' purchases and might reduce the consumer's credit limit based on an undisclosed "behavioral" scoring model.

The FTC also alleged that CompuCredit and Jefferson Capital marketed a credit card to consumers with charged-off debt. The companies represented that the consumer could improve their credit rating by applying for a new card, and that their charged-off balance would be immediately transferred to the new card and their credit report would reflect that the debt had been paid in full. In reality, consumers who accepted the offer were enrolled in a debt repayment plan and didn't receive a new card until 25% to 50% of the original debt was paid off.

In a separate settlement with the FDIC for the same charges, CompuCredit has also agreed to pay a civil money penalty of $2.4 million to the U.S. Treasury. As the FTC points out in its statement, CompuCredit's agreement to either of the settlement charges does not mean that the company admits to allegations of breaking the law.

In a statement released by CompuCredit, the company said that the settlement relates to marketing practices for 2005 and prior years, and that the $114 million in settlement payments will be applicable for certain consumer accounts opened between 2001 and 2005.

CompuCredit Chairman and CEO David Hanna stated, "We are pleased to have reached this settlement with the FTC and the FDIC in order to resolve their concerns regarding the Company's past marketing practices."

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Sunday, 01 August 2021

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