Bad Credit Card Marketing
http://creditfederal.com/article/articles/351/1/Bad-Credit-Card-Marketing
By CreditFederal.com - A good or bad credit personal loan, auto and mortgage financing, and credit card resource.
Published on 08/20/2007
Bank settles bad credit card marketing allegation of a fee nearly the credit line amount.
Bad Credit Card Marketing or Meeting People's Needs?
First Premier Bank (issuer of the Centennial Card, Centennial Gold Card, Premier Bank Card and Premier Gold Card) has agreed to settle a $4.5 million claim by New York Attorney General Andrew Cuomo that its marketing of a credit card for bad credit people was deceptive.
In some cases, the attorney general, Andrew M. Cuomo, said, recipients were charged fees in advance for cards that used up most of their credit limit, even though the bank had promised no processing fees for opening an account. That meant that the customers faced debt before even using the credit cards. Mr. Cuomo said that under state law, customers are not required to pay such upfront fees until they start using the cards.
First Premier Bank will also pay $105,000 in penalties and costs, although in the settlement the bank did not admit liability. In fact, First Premier contends that its marketing was not deceptive. According to Chief Executive Miles Beacom: "We have operated our business with the highest level of integrity." He also said the bank had changed most of the practices criticized by the attorney general several years ago and that the settlement agreement notes that in November 2003, First Premier stopped advertising that its cards had no processing fees.
"These were common business practices within the industry, and we discontinued these practices on our own initiative a number of years ago," Miles said.
One of Premier Bank's customers; Mel Nielsen, submitted a complaint which led the attorney general to take action against the bank. Mr. Nielsen said his credit rating was bad after his photocopying business failed in the late 1980s and that he applied for two Premier Bank cards in 2001. He said: "I thought, here is a chance, perhaps, to rebuild my credit." Yet when he received the cards, he discovered First Premier had charged him about $170 in upfront fees to obtain $250 in credit on each card. Mr. Nielsen said he used the cards twice, for charges of $21 and $31, before canceling them. But he said that late fees and other charges eventually increased his debt to $491 on one card and $526 on another. "My problem today," he said, "is I have three bad marks on my credit rating, two of which are theirs."
Mr. Nielsen complained to the State Consumer Protection Board and then to the attorney general?s office, which began an investigation at the end of 2004. The office said it had received complaints from about 100 people about the First Premier cards. The bank has about 500,000 cardholders statewide, the attorney general?s office said.
To settle the attorney general?s claim, First Premier agreed to pay $4.5 million to the state. The attorney general will use the money to repay customers for billing that the attorney general?s lawyers conclude is improper. Anyone wishing to file a claim can go to the attorney general?s Web site at www.oag.state.ny.us. Money that is not refunded to customers will be kept by the state, the attorney general?s office said.
What far-reaching impacts; if any, will this have upon bad credit consumers and upon credit card issuers who desire to help them?
Some may argue that the fees; although nearly the amount of the initial credit limit, are charged to help protect the credit card issuers from default by bad credit, high risk consumers. And; without the ability to charge the high fees while offering a low initial credit limit, credit card issuers may completely discontinue offering any types of credit cards to such high risk people.
Meanwhile, some may argue that the applicants of such credit cards are at fault for not fully reading; and understanding, the Terms and Conditions of these bad credit cards. Since the cards do indeed offer a credit limit; albeit small, there is a risk to the issuer, while there is a benefit of rebuilding credit to the consumer. In short, its going to cost the consumer for the trust of the credit limit and the credit reporting/rebuilding feature.
Are high fee, low limit, bad credit cards a form of predatory lending? Are such credit card issuers actively seeking bad credit people, or are they simply trying to fill a need while reducing their risks?
In some cases, the attorney general, Andrew M. Cuomo, said, recipients were charged fees in advance for cards that used up most of their credit limit, even though the bank had promised no processing fees for opening an account. That meant that the customers faced debt before even using the credit cards. Mr. Cuomo said that under state law, customers are not required to pay such upfront fees until they start using the cards.
First Premier Bank will also pay $105,000 in penalties and costs, although in the settlement the bank did not admit liability. In fact, First Premier contends that its marketing was not deceptive. According to Chief Executive Miles Beacom: "We have operated our business with the highest level of integrity." He also said the bank had changed most of the practices criticized by the attorney general several years ago and that the settlement agreement notes that in November 2003, First Premier stopped advertising that its cards had no processing fees.
"These were common business practices within the industry, and we discontinued these practices on our own initiative a number of years ago," Miles said.
One of Premier Bank's customers; Mel Nielsen, submitted a complaint which led the attorney general to take action against the bank. Mr. Nielsen said his credit rating was bad after his photocopying business failed in the late 1980s and that he applied for two Premier Bank cards in 2001. He said: "I thought, here is a chance, perhaps, to rebuild my credit." Yet when he received the cards, he discovered First Premier had charged him about $170 in upfront fees to obtain $250 in credit on each card. Mr. Nielsen said he used the cards twice, for charges of $21 and $31, before canceling them. But he said that late fees and other charges eventually increased his debt to $491 on one card and $526 on another. "My problem today," he said, "is I have three bad marks on my credit rating, two of which are theirs."
Mr. Nielsen complained to the State Consumer Protection Board and then to the attorney general?s office, which began an investigation at the end of 2004. The office said it had received complaints from about 100 people about the First Premier cards. The bank has about 500,000 cardholders statewide, the attorney general?s office said.
To settle the attorney general?s claim, First Premier agreed to pay $4.5 million to the state. The attorney general will use the money to repay customers for billing that the attorney general?s lawyers conclude is improper. Anyone wishing to file a claim can go to the attorney general?s Web site at www.oag.state.ny.us. Money that is not refunded to customers will be kept by the state, the attorney general?s office said.
What far-reaching impacts; if any, will this have upon bad credit consumers and upon credit card issuers who desire to help them?
Some may argue that the fees; although nearly the amount of the initial credit limit, are charged to help protect the credit card issuers from default by bad credit, high risk consumers. And; without the ability to charge the high fees while offering a low initial credit limit, credit card issuers may completely discontinue offering any types of credit cards to such high risk people.
Meanwhile, some may argue that the applicants of such credit cards are at fault for not fully reading; and understanding, the Terms and Conditions of these bad credit cards. Since the cards do indeed offer a credit limit; albeit small, there is a risk to the issuer, while there is a benefit of rebuilding credit to the consumer. In short, its going to cost the consumer for the trust of the credit limit and the credit reporting/rebuilding feature.
Are high fee, low limit, bad credit cards a form of predatory lending? Are such credit card issuers actively seeking bad credit people, or are they simply trying to fill a need while reducing their risks?