Feds Seek $200+ Million In Actions Against Subprime Card Issuers

CompuCredit Corp., an Atlanta-based credit card company, and two banks with which it has third-party card program arrangements, today are the subject of charges and a lawsuit filed, respectively, by the Federal Deposit Insurance Corporation and Federal Trade Commission. The FDIC is seeking consumer restitution it estimates will exceed $200 million. FDIC issued its enforcement actions against CompuCredit and two FDIC-supervised banks – First Bank of Delaware, which is based in Wilmington, Del., and First Bank & Trust, which is based in Brookings, S.D.– for allegedly marketing subprime credit cards in violation of the Federal Trade Commission Act. If FDIC's enforcement charges are upheld, the court would require the companies to provide credits for restitution for fees and charges arising from the deceptive marketing practices, FDIC board member Thomas J. Curry said at a news conference today. The FDIC also seeks civil penalties of $6.2 million against CompuCredit, and $431,000 against First Bank of Delaware and First Bank & Trust. Curry said supervised banks "must be highly vigilant about their third-party arrangements, especially in the subprime arena." When they are not, he said, it can lead to predatory lending practices and violations of federal consumer laws. FDIC and FTC each allege CompuCredit's card solicitations to subprime consumers failed to disclose significant upfront fees and misrepresented the initial available credit. For example, cards with an advertised $300 credit limit actually had $185 "in inadequately disclosed fees, leaving them with as little as $115 in available credit," Lydia Parnes, director of the FTC's Bureau of Consumer Protection, said at the news conference. The FTC complaint also cites violations of the Fair Debt Collection Practices Act stemming from allegations of abusive debt collection practices by CompuCredit's collection agency subsidiary, Jefferson Capital Systems LLC. FTC alleges that Jefferson misrepresented a debt collection program as a credit card offer and used such tactics as an egregious number of calls per day to debtors. The FDIC settled with a third bank, Columbus Bank and Trust, which is based in Columbus, Ga., and also was involved with CompuCredit's cards, for $7.5 million in consumer restitution and cooperation in the FDIC's action against CompuCredit, according to Curry. CompuCredit issued a statement saying the federal agencies' claims "are untrue and without merit," and the company "intends to vigorously contest these unsupported allegations."