In the Consumer Financial Protection Bureau’s second action against unscrupulous credit card companies this week, it has ordered a subprime credit card issuer to refund $2.7 million to customers for illegally charging costly fees.
The CFPB announced today that it ordered Delaware-based Continental Finance Company LLC to provide refunds for an estimated 98,000 affected customers.
According to the CFPB complaint [PDF], the subprime credit card company violated the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act when the “fee-harvester” cards – which often have low credit limits and high upfront fees – it issued contained misrepresented fees and illegal charges.
Between April 2012 and July 2013, consumers who signed up for one of three Continental Cards – Cerulean Card, the Matrix Card, and the Verve Card – typically received a $300 credit limit and were charged an upfront fee of $75, which immediately met the 25% fee limit under the CARD Act. During the next twelve months, Continental then charged certain consumers fees that exceeded the fee cap.
The CFPB reports that Continental regularly provided materials to consumers that indicated they would only be charged a monthly paper fee if they “elected” paper billing. In reality, the company automatically required certain consumers to pay a monthly $4.95 fee unless they opted out through an online process.
The paper statement fees violated the ban on credit card companies from requiring fees over 25% of the consumer’s credit limit during the first year after opening an account.
Specifically, the CFPB claims Continental charged some consumers up to an additional $49.50 in “paper statement fees” for providing paper billing statements during the first 12 months.
When that fee was added to the $75 maintenance fee and setup fee, the paper statement fee constituted as much as 42% of the consumer’s $300 credit limit during the first year.
The CFPB also charges that Continental misrepresented account insurance by stating in some cardholder agreements that security deposits provided by consumers would be “FDIC insured” when for a time period they were not insured.
In addition to refunding consumers $2.7 million, Continental must pay a $250,000 civil penalty to the CFPB’s Civil Penalty Fund.
The company is also prohibited from engaging in illegal practices and will be subject to the CFPB’s supervisory authority for the first time.