| Subprime Credit Card Lawsuit |
| By Credit Federal |
Published
06/22/2008
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Credit Card
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The Federal Trade Commmission filed a lawsuit against CompuCredit Corporation and Jefferson Capital
The FTC is seeking $200 million in penalties, claiming CompuCredit marketed a subprime Visa credit card with a $300 credit limit but did not make it clear to customers that they could be charged up to $185 in upfront fees leaving only $115 in available credit.
Another part of the lawsuit includes a credit card with a $3,250 credit limit marketed to consumers with higher credit scores. In this case, CompuCredit didn't make it clear that only a portion of the credit limit was available for the first 90 days as their spending habits were analyzed. Then, after 90 days the remaining credit could be reduced if the cardholder shopped at certain places inluding: tire treading shops, massage parlors, bars, billiard halls, and marriage counselors. The FTC is not suing because of the screening, but because the process was not disclosed to consumers.
Finally, CompuServe and Jefferson Capital, its subsidiary, marketed a Visa credit card that could be used to pay charged-off accounts. The companies promised the customer's credit report would be updated to reflect the account was paid in full. The companies failed to properly disclose that cardholders would be enrolled in a debt payment program and would not receive credit cards until a certain percentage of the debt had been repaid.
The FTC alleges both companies violated the FTC Act and that Jefferson Capital violated the FDCPA by calling excessively and calling outside the allowed hours.
Two years ago, CompuCredit entered a $11 million settlement with New York Attorney General (at the time) Eliot Spitzer for similar allegations. The company agreed to change their marketing practices after that suit.
Potential Problem: Can a few bad apples spoil the entire credit industry? If federal legislatures go overboard with regulations, it's possible that only the rich and affluent Americans will be able to obtain a credit card. The reason why subprime credit card issuers charge higher interest rates is to offset the high risk of extending lines of credit to bad credit people. And, they limit the amount of the line of credit to likewise limit their losses. Certainly, any credit card company that uses deceptive practices should be punished, but their misdeeds should not affect the entire industry lest it remove an option from consumers. Do bad credit people really want the federal government to deny them lines of credit? Surely not.
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