Usurious CompuCredit Sued by FDIC, FTC for Over $200 Million
(APN) ATLANTA — CompuCredit, an Atlanta-based credit firm that services usurious credit cards and loan products, which harvest fees and high interest charges off of low-income families with poor credit scores, is accused of deceiving and taking advantage of its customers.
According to legal filings obtained by Atlanta Progressive News, the Federal Deposit Insurance Corp (FDIC) is seeking an estimated $200 million or more in restitution plus fines in an administrative law court, from CompuCredit and two banks–First Bank of Delaware, and First Bank and Trust of Brooking, South Dakota–which provided the loans that CompCredit services. The FDIC seeks $6.2 million in fines from CompuCredit and $431,000 total from the two banks.
Meanwhile, the Federal Trade Commission (FTC) filed a parallel action in US District Court in the Northern District of Georgia against CompuCredit and a subsidiary, Jefferson Capital Systems. Both actions were filed on June 10, 2008.
CompuCredit describes itself as a “provider of various credit and related financial services and products to or associated with the financially underserved consumer credit market.”
This “underserved consumer credit market” is also known as the sub-prime market. The mortgage crisis seems to be the stimulus for government enforcement of existing regulations on sub-prime lending.
Supporters of CompuCredit state the organization specializes in the sort of loans poor people need.
These loans also make investment instruments that rich people need. The company would “only make loans that would be profitable no matter what,” according to the annual report to CompuCredit’s investors.
The Motley Fool, a respected web site, recommended the company as a good investment.
In 2007, CompuCredit collected $400 million in fee harvesting and saddled their customers with a billion dollars in debt, according to The National Consumer Law Center.
Others accused the FTC of targeting the company simply because of its profitability: “a huge abuse of regulators authority,” Tom Brown, a financial columnist, said.
The FTC charges the company with using deceptive marketing and abusive collection techniques.
According to the agency, “CompuCredit misrepresented the credit limits on its credit cards, failed to disclose the up-front fees charged for some of its credit cards, and failed to disclose how certain transaction could adversely affect the available credit on the credit cards.”
CompuCredit had three different types of cards: a $300 credit line card internally nicknamed the “Little Rock” Card, a card up to $3250 in credit nicknamed the “Core” Card, and a card that essentially reactivated charged off debts.
The various programs were issued under multiple brand names such as Aspire, Aspire A Mas, FreedomCard, Tribute, Imagine, Majestic, Aspen, Emerge, and Fingerhut Credit Advantage.
The “Little Rock” cards issued by CompuCredit falsely promised $300 in credit and then had $185 in upfront fees that the FTC claims were not properly disclosed, having the words “prequalified, no deposit fee, or application fee” prominently displayed on the mail outs.
These are known as “fee harvester” credit cards. They are cards with hidden costs and fees – in this case, $29 account opening fee, $150 annual fee, and a $6.50 monthly fee, on top of an annual percentage rate of 25% or more.
The “Core” cards promised a $3250 credit line. The small print stated half the credit would not be made available until four months into the process.
However, the consumer without his or her knowledge would often be denied half the credit line based on what the credit card was used for. Card usage for marriage counselors, personal counselors, automobile repair and retreading, bars and night clubs, pool halls, pawn shops, massage parlors, and direct marketing merchants, resulted in reduced credit lines or other adverse actions.
Collections were also part of the Federal suit. Collection agents would call up to thirty times a day, on Sundays, early in the morning, and late at night. They would use abusive language and would call the human resource departments of their clients at their place of employment. If possible, wages would be garnished, according to the suit.
The company also sent out bills so they would arrive at the last minute, in order to accrue fines, according to Rip Off Report.
A large part of the suit was over the third type of cards issued by CompuCredit which falsely claimed consumers could rebuild credit.
The normal procedure for reestablishing credit is to get a secured credit card, put down money on the credit card in advance, and make sure it is reported.
According to the suit, CompuCredit did not provide new credit at all. Instead of paying off old debts as claimed and establishing a new credit record, they harassed card owners in order to collect old debts. At times, these included debts that had been discharged and could not legally be collected.
Some individuals report CompuCredit was changing the date on debts to make them current, according to the website, Rip Off Report.
The company would not issue a card until 25 to 50% of the debts and new fees had been paid off. Then consumers were given cards worth 5% of their debt, according to the suit filed.
Columbus Bank and Trust, a Georgia bank which partnered with CompuCredit, has agreed to pay $2.4 million in fines and set up a $7.5 million restitution fund, after being sued for failing to disclose hidden fees, engaging in improper debt collection practices, among other scams.
CompuCredit previously paid $2 million in restitution to New York customers plus a $500,000 fine, after former New York Attorney General Elliot Spitzer brought a similar action against the firm and Columbus Bank and Trust.
CompuCredit’s press spokesperson did not return a voicemail left by Atlanta Progressive News seeking comment.
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Alice Gordon is a Staff Writer for The Atlanta Progressive News and may be reached at firstname.lastname@example.org
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