FDIC Seeking $200 million fine over Subprime Credit Cards

Losses and Lawsuits

WASHINGTON, DC - US regulator the Federal Deposit Insurance Corporation (FDIC) has issued enforcement actions against Atlanta-based credit provider CompuCredit and First Bank of Delaware and First Bank & Trust of Brookings, South Dakota. The regulator is trying to claim as much as $200 million through the US legal system over deceptive marketing practices that breach the Federal Trade Commission Act in the selling of subprime credit cards. The FDIC is also seeking civil money penalties totalling $6.2 million against CompuCredit, and $431,000 against the two banks. The regulator has already settled with a third bank, Columbus and Trust, for $2.4 million.

The FDIC's case is based on improper selling of three categories of Visa and Mastercard credit cards. One of these was a fees-based card package aimed at customers with low credit scores, for which the FDIC alleges CompuCredit failed to properly disclose upfront fees and therefore the remaining credit available. The second product was aimed at consumers with higher credit ratings and offered a higher limit, but failed to disclose the true credit limit for the first 90 days, or that it would monitor purchasing behaviour, and potentially reduce their credit limits based on undisclosed scoring models. The other is a debt transfer card marketed to customers with debt elsewhere. The FDIC claims that CompuCredit offered to transfer the debts off the card and report them to consumer reporting agencies as paid off, when customers were in fact enrolled on a debt repayment plan, did not receive a Visa unless they paid their debts within a year, and when they did it was assigned nominal credit.