A subprime credit card issuer will refund $2.7 million to customers and pay a $250,000 fine for charging customers illegal fees, the Consumer Financial Protection Bureau announced on Wednesday (Feb. 4).
The CFPB said that Continental Finance Co. LLC, a card issuer headquartered in Newark, Delaware, issued subprime credit cards that typically had a $300 credit limit, which meant the maximum Continental could charge customers in fees during the first year was $75, or 25 percent of the credit line, a limit set by the 2009 Credit Card Accountability, Responsibility and Disclosure (CARD) Act.
But Continental required an upfront fee of $75 and then charged some cardholders additional fees that exceeded the CARD Act limit. Approximately 98,000 customers were hit with those illegal fees, usually because they were charged a monthly $4.95 fee for receiving paper billing.
CFPB also charged that Continental misled customers about the paper statements. Continental’s marketing materials “indicated that consumers would only be charged a monthly paper statement fee if they ‘elected’ paper billing. In reality, Continental automatically required certain consumers to pay a monthly $4.95 fee unless they opted out through an online process,” the CFPB said. Continental also claimed in some cardholder agreements that security deposits consumers provided would be “FDIC insured,” but that wasn’t always true.
The CFPB’s consent order, issued Wednesday, requires Continental to provide full refunds to the 98,000 cardholders who were overcharged beyond the CARD Act limits, a total of about $2.7 million. Those cardholders won’t have to take any action to receive their refunds, the agency said.
Continental will also pay a $250,000 civil penalty fine, and is prohibited from overcharging under the CARD Act or making deceptive statements about its card fees and whether consumers’ funds are covered by FDIC or other deposit insurance. Continental will also be subject to CFPB supervision, which can include examinations of the company and monitoring by the CFPB for compliance with consumer financial protection laws.
On Tuesday (Feb. 3), the CFPB announced a settlement with Union Workers Credit Services, which allegedly charged a fee to thousands of customers for what it claimed was a general purpose credit card that could actually only be used to buy products from the company. Union Workers Credit Services agreed to pay a $70,000 fine without admitting guilt. The CFPB also announced a deal on Tuesday to forgive $480 million in high-cost private student loans issued by the for-profit Corinthian College.