The state of New York has reached an agreement with a leading sub-prime credit card issuer to resolve an investigation into its marketing and billing practices. Under the agreement, Columbus Bank and Trust Company and CompuCredit Corporation will reform their business practices and provide $11 million in restitution to New York consumers.
"This agreement sets a new standard in the way sub-prime credit cards are marketed and collected, and reflects the state's ongoing commitment to protect those most vulnerable to fraud and deception," Attorney General Eliot Spitzer said.
The Attorney General's office began a probe of the Georgia-based Columbus Bank last year after receiving a number of consumer complaints regarding the bank's Aspire Visa credit card.
The investigation revealed that Columbus Bank, in partnership with CompuCredit, a specialty financial service company that provided marketing, billing and collection services to the bank:
• Failed to properly disclose activation charges of as much as $179 on Aspire Visa cards, which were marketed to people with poor credit histories;
• Exaggerated the lines of credit associated with the credit cards;
• Repeatedly enrolled cardholders in third party membership programs without consumers' knowledge or consent and then billed cardholders renewal fees; and
• Engaged in improper debt collection practices.
In settling the matter, Columbus Bank and CompuCredit agreed to improve disclosure of fees and charges, clearly state credit lines, and reform debt collection practices. The two companies will also make restitution of $11 million to cardholders, including credits and refunds for account activation fees and charges for third-party membership clubs.
In addition, the companies will pay $525,000 to the state in civil penalties and costs.
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