| FTC Sues Subprime Credit Card Marketing Company |
 |
 |
 |
| Written by Thomas B. Hudson |
| Wednesday, 06 August 2008 10:44 |
|
The Federal Trade Commission (FTC) recently sued CompuCredit Corporation and its wholly owned debt collection subsidiary, Jefferson Capital Systems, LLC, for deceptive marketing practices in selling credit cards to consumers in the subprime market. The action bears watching by car dealers. The FTC and the Federal Deposit Insurance Corporation (FDIC) engaged in a coordinated investigation of the defendants’ marketing practices. The FTC charged both defendants with violating the FTC Act and Jefferson Capital with violating the Fair Debt Collection Practices Act (FDCPA). The FDIC has also issued notice of administrative charges against CompuCredit and two banks that issued credit cards marketed by CompuCredit. The FTC’s Lydia Parnes says, “It is important for all consumers, including those in the subprime market, to have access to credit card products. But the marketing of these products must be truthful; it should not, and cannot be misleading about the true costs and terms of the credit card.” As stated in the FTC’s complaint, CompuCredit markets credit cards, primarily through direct mail solicitations, under various brand names. The FTC claims that CompuCredit violated the FTC Act by misrepresenting the amount of credit that would be available immediately to consumers, failing to disclose upfront fees, failing to disclose that certain purchases could reduce a consumer’s credit limit, and misrepresenting a debt collection program as a credit card offer. Jefferson Capital allegedly sinned by misrepresenting a debt collection program as a credit card offer and using abusive collection tactics such as making debt collection calls to individual consumers more than 20 times per day, including before 8 a.m., after 9 p.m., and on Sundays. A paragraph from the FTC’s complaint will give you an idea about what had the FTC’s “shorts in a twist.” 25. In a typical and illustrative direct mail solicitation package, CompuCredit also has represented, in the cover letter, at the top of the page, set aside from other text, and in bold: • You’re Pre-Qualified! • Unsecured Visa card! • Credit line increase within 6 months when you make your payments on time!** • No deposit required! Rebuild your credit† After the heading described above, CompuCredit further states, “You have been PRE-QUALIFIED* for the Aspire Visa card with a credit limit of $300*... And unlike a secured credit card, your Aspire Visa does not require a deposit.” (Emphasis in original). At the bottom of the page, in a smaller font than the representations described above and the main text of the letter, CompuCredit has included several disclaimers, including a disclaimer after the “*” symbol instructing consumers to “see the enclosed insert which is incorporated here by reference, for a Summary of Credit Terms and Terms of Offer. This offer is subject to further review of financial information. Your available credit line may be reduced by certain fees that will be billed directly to your account, including an annual fee, an account opening fee, and an account maintenance fee, as described in the Summary of Credit Terms.” The disclaimers after the “**” and “†” symbols explain, respectively, that consumers who make four minimum monthly payments on time and remain in good standing will receive a credit line increase and that CompuCredit will report the consumer’s account balance to the three major credit bureaus. CompuCredit makes no other mention of fees in this typical and illustrative cover letter. Part of what the FTC is saying is that they believe it is a violation of the FTC Act to create advertisements in which an advertiser takes back in “mouse type” what it appeared to give away in big type. If you are a car dealer, a lawyer, or compliance professional reviewing ads for a car dealer, the appropriate reaction should be “Yikes!” or “Holy Asterisk, Batman!” Why? Pick up any weekend newspaper and turn to the car pages, or, worse yet, take a walk with me down to the mailbox and open the solicitations from the local car dealer and you’ll see that the FTC will not run short of targets for these charges in the near future. Yep, this one bears watching. Thomas B. Hudson, Esq. is the author of a new book, CARLAW® II, Street Legal. He is also the author of CARLAW®, and is the editor/author of the CARLAW® F&I Legal Desk Book, as well as the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers, and the editor in chief of CARLAW®, a monthly report of legal developments in all states for the auto finance and leasing industry. In addition, he is a partner in the Maryland office of Hudson Cook, LLP. For information, call 410-865-5411, email This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or visit www.counselorlibrary.com. |
