Lawsuit Challenges Subprime Credit Card Marketing Techniques
With the economy sagging and bankruptcy filings on the rise as consumers wallow deeper and deeper in debt, many Americans are looking for somewhere to point a finger of blame. According to Market Watch and the Wall Street Journal, it seems that the FDIC (Federal Deposit Insurance Corp.) and FTC (Fair Trade Commission) have found a target.
The FTC has reportedly filed a lawsuit against credit card marketer CompuCredit, accusing it of inadequately disclosing the terms of some of its subprime credit products. Similarly, the FDIC is apparently seeking more than $2 million in restitution from CompuCredit and two banks, First Bank of Delaware and First Bank & Trust.
The legal issue behind the FTC suit, it seems, is the nature of the marketing schemes CompuCredit used to attract customers. The lawsuit reportedly charges the company with neglecting to disclose specific fees associated with its products - including upfront fees, account activation fees and monthly maintenance fees - and with misleading customers about their credit limits.
Apparently, CompuCredit advertised cards with a $300 limit but neglected to mention that consumers would be responsible for $185 of fees right away, and so would only have a $115 limit - less than half of what was promised.
For another card, the company allegedly advertised a card whose limit was more than $3,000 but would not be fully available until after the first three months of holding the card.The cards in question, which were evidently marketed under the names Aspire, Majestic and Tribute, carried Visa and MasterCard logos. According to sources, insiders believe that hundreds of thousands of customers were victimized by the deceptive marketing practices, meaning that they will receive restitution if the suit is successful.
In addition to the $2 million in restitution, sources indicate that the FDIC is also seeking $6.2 million in civil damages from CompuServe and another $431,000 from the two banks.
This lawsuit is significant because it reportedly marks the largest amount the FDIC has ever sought in restitution on behalf of customers, and could benefit many who were charged as much as $185 in improperly discloses fees.
Reports note that CompuCredit plans to vigorously deny the charges against it and has dismissed both accusations as untrue and without merit.
Marketing aggressively to subprime customers (those whose credit histories are less than stellar) was common during the recent housing boom, when credit of all kinds was easy to obtain. Now that the economy has swung toward a recession, though, the other shoe has dropped and consumer activists and government organizations are aggressively cracking down on practices that went largely unnoticed when the economy was stronger.