Though Congress has been pushing for greater oversight of the credit card industry as a (rather belated) response to the credit crisis that has been engulfing the American economy, the Federal Deposit Insurance Corp. and the Federal Trade Commission have finally struck a blow against the credit card industry in the only language these companies know: money.
The FDIC and FTC have concluded an investigation into the lending practices of an organization named CompuCredit Corp. and two banks that offered credit cards issued by the company, First Bank of Delaware, Wilmington, Delaware, and First Bank & Trust, Brookings, South Dakota.
In a statement issued by the investigation board, the federal regulators are demanding more than $200 million in restitution on behalf of consumers for deceptive lending practices and hidden fees.
Additionally, the regulators are seeking $6.2 million from CompuCredit Corp. and $431,000 from First Bank of Delaware and First Bank & Trust in civil penalties. If the measure withstands likely appeal, the amount would be the largest restitution amount that the FDIC has ever sought.
According to the report summarizing their findings, CompuCredit ran a scheme typical of subprime lenders.
After granting credit cards with a credit limit of $300 to subprime borrowers, CompuCredit immediately charged up to $185 in undisclosed fees, essentially trapping borrowers with only $115 in available credit and a hefty balance.
Prime borrowers weren't immune to Compucredit's schemes, either; borrowers with good credit were offered higher credit lines of up to $3,250, but were failed to be notified that half of this amount would be withheld for the first ninety days.
Further, Compucredit marketed a debt transfer plan that would completely repay charged-off debt and report it to credit agencies as fully paid; however, instead, the company enrolled customers in a debt repayment plan and withheld credit until up to 50% of the debt was repaid.
Compucredit denied any wrongdoing and vowed to fight the allegations, but with the FDIC and FTC hot on its trail with such damning evidence, it likely has little recourse, and may go the way of fellow subprime lender First Premier, who reached a settlement with the New York State's Attorney's Office for its deceptive lending practices.
In any case, consumers should be on the lookout for companies who offer credit to borrowers regardless of credit history and be especially careful in reading the fine print of these companies' credit card agreements.
Compucredit outright deceived its customers, but many companies get away with outrageous interest rates and fees by burying them in the terms of agreement-read carefully and beware!
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