June 10, 2008 / 6:57 PM / in 11 years

U.S. sues CompuCredit over credit card practices

WASHINGTON (Reuters) - U.S. regulators accused telemarketer CompuCredit Corp CCRT.O and two banks on Tuesday of deceiving hundreds of thousands of credit card customers by withholding important details and blindsiding them with fees.

The regulators filed a series of civil and administrative-proceeding charges against CompuCredit, First Bank of Delaware FBOD.OB and South Dakota-based First Bank & Trust, seeking more than $200 million in restitution and civil penalties.

After a joint investigation by one agency that regulates banks and another that enforces consumer fraud and deception rules, the regulators said CompuCredit and the banks engaged in “unfair and deceptive practices” by failing to properly disclose upfront fees and credit limits to consumers with poor credit.

The Federal Deposit Insurance Corporation took enforcement action by filing administrative-proceeding charges against CompuCredit and the two FDIC-regulated banks, which issued credit cards marketed by CompuCredit.

The Federal Trade Commission filed a civil suit against CompuCredit and its debt collection subsidiary Jefferson Capital Systems LLC in a federal court in Atlanta.

Officials said the defendants violated federal disclosure rules under the Truth in Lending Act — a big issue in Washington these days as the Federal Reserve tries to rewrite the rules to make credit card solicitations and billing disclosures clearer for customers.

CompuCredit denied any wrongdoing and said the federal regulatory moves would have no material impact on its financial condition. The Atlanta-based company provides payday loans, auto financing and credit cards to consumers with low credit scores.

Its shares fell more than 28 percent to close at $6.30 on Nasdaq.

In addition to the $200 million in restitution the FDIC is seeking from CompuCredit, First Bank of Delaware and First Bank & Trust, the FDIC is also seeking civil penalties of $6.2 million from CompuCredit and a total of $431,000 from the two banks.

A third bank — Columbus Bank and Trust from Georgia, a unit of Synovus Financial Corp (SNV.N) — settled for $2.4 million, the FDIC said in its statement.

“This case is part of a broader effort to address consumer protection issues in the subprime market for mortgages and credit cards,” said Lydia Parnes, director of the FTC’s Bureau of Consumer Protection, at a press briefing.

Among other allegations, the FTC accused CompuCredit of telling consumers that it would offer them a Visa (V.N) credit card with a $300 credit limit, then charging as much as $185 in fees that had not been adequately disclosed.

CompuCredit also offered credit cards with “up to $3,250” in available credit to consumers with higher credit scores but failed to tell holders only half would be available for the first 90 days, regulators alleged.

The FTC alleged that Jefferson Capital telephoned consumers who owed money “in excess of 20 times per day, in some cases, at intervals of only twenty to thirty minutes.” That, and other practices like debt collectors using abusive language, is illegal.

CompuCredit said it would fight the allegations.

“The claims asserted by the FTC and FDIC in settlement negotiations regarding CompuCredit’s past credit card marketing practices are untrue and without merit,” the company said in a statement. Jefferson Capital’s collection practices, it added, “are fully compliant with all applicable state and federal laws and regulations.”

First Bank of Delaware Chief Executive Harry Madonna said the FDIC claims are unfounded and unfair. “The bank will vigorously defend its programs through the administrative hearing process afforded to the bank by federal law,” he said.

First Bank & Trust could not immediately be reached for comment.

The actions taken by the FDIC and FTC culminated in a joint investigation started in 2001, officials said, and resulted after negotiations with CompuCredit failed to settle the allegations.

Editing by Dave Zimmerman, Gary Hill

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