Credit card issuer CompuCredit, and its wholly-owned debt collection agency, will repay consumers up to $114 million to settle charges brought by the Federal Trade Commission and the Federal Deposit Insurance Corp. that it engaged in deceptive practices when marketing and collecting on cards to consumers in the subprime market.
The FTC and FDIC announced this past summer that they had filed a lawsuit against Atlanta-based CompuCredit (Nasdaq: CCRT) and its debt collection business Jefferson Capital Services. At the time, the regulators said the restitution paid in the case could reach $200 million (“Feds Name CompuCredit and Collector Jefferson Capital in $200 Million Suit,” June 11).
At issue was the manner in which CompuCredit sold its credit cards to consumers with poor or no credit history. The company would offer an unsecured card with a credit limit of $300 to subprime customers. CompuCredit would then charge the consumers fees of up to $185 without disclosing the fees, effectively dropping the available credit down as low as $115. The FTC claimed this would often lead to additional charges as customers exceeded their credit limit in the first month.
The FTC also said that CompuCredit’s collection agency, Jefferson Capital Services, violated the Fair Debt Collection Practices Act (FDCPA) 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. and after 9 p.m., and on Sundays.”
The vast majority of the settlement restitution will be paid in the form of credits to consumer credit card accounts. Eligible consumers whose current balances are less than the amount of credits to be applied will receive an estimated $3.7 million in cash refunds. In addition, CompuCredit has agreed to a civil money penalty of $2.4 million as part of its settlement with the FDIC.
Jefferson Capital will be prohibited from engaging in abusive practices while collecting debts going forward.
CompuCredit said in a statement that the settlement involves marketing practices used in 2005 and earlier, and would not require changes to current company practices. Additionally the settlement will not affect the company’s financial condition, CompuCredit said.