The Federal Trade Commission has ended its suit against subprime credit card marketer CompuCredit Corp. with an agreement for the company to repay card users $114 million.
According to a lawsuit filed by the FTC in June 2008 against the company, CompuCredit and a debt collection company it owned allegedly engaged in deceptive and abusive conduct in marketing subprime credit cards to millions of consumers. Subprime credit cards — also known as ‘fee harvesting’ cards in the industry — are marketed to people with bad credit. The cards typically carry low credit limits — as little as $300 to $500 — and feature security deposits and high upfront fees for such things as opening the account and monthly maintenance.
The fees eat up most of the available credit and consumers are potentially subject to over-the-limit fees or are left without the use of the card. New credit card rules approved by the Federal Reserve Board attempt to make the cards more consumer friendly by banning fees that amount to more than 50 percent of the credit limit and requiring that fees totaling more than 25 percent of the available credit are repaid over six months rather than piled on up front. (SeeWhat the new credit card rules mean for you.)
“This settlement is a big win for consumers,” Lydia B. Parnes, the FTC’s director of consumer protection, said in a press release. “When signing up for a credit card, consumers have the right to know the truth about the amount of credit they are getting and the cost of that credit up front.”
Eligible consumers who still have CompuCredit accounts would be credited on their accounts for the amount of fees they were charged. People whose current balances are less than the amount of credits will get an estimated $3.7 million in cash refunds.
As part of the settlement, neither CompuCredit nor its subsidiary, Jefferson Capital Systems LLC, admitted violating the Federal Trade Commission Act provisions against unfair and deceptive trade practices.
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See related: Feds seek $200 million for ‘fee harvesting’ credit cards, Evils of ‘fee harvesting credit cards known for long time, 5 things to know about fee harvesting credit cards, Federal regulators issue sweeping new credit card rules