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From Banking and Finance Law Daily, February 4, 2015

Subprime credit card company to refund $2.6 million in fees

By Richard A. Roth, J.D.

Continental Finance Company, LLC, a Delaware company that originated credit cards marketed to subprime borrowers, has agreed to refund more than $2.6 million in fees and pay a $250,000 civil penalty to settle charges that it imposed excessive fees and made misrepresentations. The Consumer Financial Protection Bureau says the company imposed fees in the first year of an account that were higher than those permitted by the Credit Card Accountability, Responsibility, and Disclosure Act, misrepresented that consumers could avoid the fees, and misrepresented that some customer security deposits were protected by federal deposit insurance.

According to the consent order, Continental worked in cooperation with a state-chartered credit union to issue high-fee credit cards, referred to as “fee-harvester cards.” The CARD Act says that fees are limited to 25 percent of the account credit limit in the first year after an account is opened. Continental generally gave consumers a $300 credit limit and charged a $75 fee—the highest fee permitted.

Excessive fees. However, Continental added a $4.95 monthly fee for paper billing statements, the CFPB says. The company represented that this fee could be avoided because receiving paper statements was optional, but the bureau says consumers were sent paper statements automatically and effectively could not opt out. The $4.95 per month, when added to the initial $75 fee, exceeded the 25-percent limit, the CFPB says.

The bureau says that in a 16-month period beginning April 1, 2012, Continental opened more than 290,000 accounts. The expected $2.67 million in refunds represents the paper statement fees imposed during that period.

Misrepresentations. According to the consent order, Continental made two misrepresentations. First, the company misrepresented that receiving paper billing statements, and incurring the additional fee, was optional.

Second, Continental misrepresented that customer security deposits were protected by deposit insurance. Some of the cards the company originated were either partially or fully secured, and the company’s cardholder agreements promised the funds posted by consumers as security would be deposited in a financial institution covered by federal deposit insurance. However, for nearly 10 months, this was not the case, the CFPB says. Between 9,000 and 16,000 customers were exposed to loss by the company’s action, although no deposits actually were lost.

Companies: Continental Finance Company, LLC

MainStory: TopStory ConsumerCredit CFPB CreditDebitGiftCards TruthInLending UDAAP

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