The Office of the Comptroller of the Currency has ordered the credit card-issuing subsidiary of Metris Companies Inc. to pay $3.2 million in restitution to 62,000 people who regulators say were victims of “downselling,” in which they were promised a certain type of card but instead given one with worse terms and a hidden $79 processing fee.

The OCC said Friday that it had not yet decided whether to charge Metris an additional penalty for the deceptive mailings, which the regulator said violated the Truth-in-Lending Act and Regulation Z.

The problem came to light during a routine examination of Metris’ direct mail practices. Metris, a Minnetonka, Minn., company that specializes in issuing credit cards to subprime customers, said it had discontinued the direct mail pieces before the OCC began its review because the pieces in question were not very successful.

Patrick J. Fox, president of Direct Merchants Credit Card Bank, the Metris subsidiary cited by the OCC, said the flawed direct mailings totaled 13.5 million pieces out of about 84 million solicitations mailed from March 1, 1999, to June 1, 2000. “We conducted these test marketing campaigns from March 1999 to June 2000,” he said in a telephone interview. “There were a couple of different types of direct mail pieces.”

According to the OCC, Metris had been “prominently marketing to consumers one package of credit card terms but then approving those consumers only for accounts with less favorable terms and touting the approved account in a fashion designed to mislead the customer about the fact he or she had been ‘downsold.’ ”

Mr. Fox said the problem was primarily the fact that the company’s direct mail pieces mentioned a processing charge that should have been labeled a finance charge. “If we had disclosed it as a financing charge, it would not have been an issue,” he said.

In a press release, Mr. Fox stated: “While we disagree with the OCC’s interpretation of some of the applicable regulations, we certainly accept its authority over these matters. We have a track record of open, honest dealings with consumers, including the 4.5 million who currently have Direct Merchants Bank credit card accounts.”

The $3.2 million is to reimburse fees and interest charged to cardholders who got direct mail pieces that did not properly disclose fees as finance charges either in the initial disclosure statement or in the periodic statement that disclosed the fee, according to the consent order.

Credit card issuers have been charged with numerous blunders in marketing and business practices in recent years, some of them the subject of class actions and others the target of regulatory discipline. The biggest case was the $300 million settlement agreed to by Providian Financial Corp. and brokered by the OCC and the San Francisco district attorney’s office.

Direct Merchants Credit Card Bank, which is in Scottsdale, Ariz., has been the subject of prior complaints about its marketing practices. A class action filed last year in Minnesota alleged that Metris engaged in widespread deceptive practices, including imposing fees for unauthorized fee-based services, charging late fees for payments received on time, and promising lower interest rates than people ended up receiving for services such as balance transfers and cash advances.

In a statement released Friday about the consent order agreed to with Direct Merchants, the OCC described direct mail pieces that promised recipients “guaranteed approval” for unsecured credit cards but instead gave them cards that were partially secured by a deposit.

People who responded to the mailings were sent credit cards that charged fees but “did not advise that the consumer had been approved only for the card with an annual fee, the higher interest rate, and a required deposit of $99 that would be charged against the card,” according to the OCC. “In addition, although the consumer had been downsold, the welcome package prominently stated that the consumer had been approved for the Titanium card and provided information about the desirability of having a Titanium card.”

In some mailings, more than 50% of the people who responded were downsold and required to pay a $79 processing fee, according to the OCC.

Direct Merchants Bank must refund the fees, the higher interest charged, and over-the-limit fees for those who exceeded their limit by less than the processing fee. All refunds are be paid with interest and will be accompanied by a letter signed by the OCC.

The consent order also outlined a laundry list of misleading statements the bank must be careful not to make in the future. It will not be able to use “guaranteed,” “preapproved,” or similar terms in a misleading manner, nor will it be able to downgrade a customer’s credit card offer without informing the person that he or she “has been approved for one or more credit terms less favorable than the most favorable terms disclosed in the original communication.”

The 62,000 customers to be reimbursed suggest a response rate of 0.46% to the 13.5 million faulty solicitations, well below the research firm BAI Global’s estimate of a 0.6% overall credit card direct mail response rate. Mr. Fox denied that the numbers suggested such a low response rate; he explained that not all respondents to the direct mail pieces were due refunds. “We enjoyed response rates significantly higher than the industry,” he said. “Our competitors would love to know what our response rates are.”

Analyst Moshe Orenbuch of Credit Suisse First Boston said he found the consent order ironic, given that it mostly applied to partially secured card customers. “This is a portfolio that has caused them some problems already due to their credit loss rates,” he said. “The partially secured business has caused about a 50-basis-point increase in their loss rates in the first quarter.”

Mr. Orenbuch said the agreement with the OCC should have no material effect on earnings. On Friday, he reiterated his “strong buy” rating on Metris, with a $45 price target. Metris’ stock closed at $29.25 a share Friday, down 68 cents.

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