Horizon Card Services is getting sued by a government watchdog for trapping people into fake, high-fee credit cards that couldn't buy everday items.
The Consumer Financial Protection Bureau (CFPB) said it is sueing the company and its chief executive officer and sole shareholder, Robert Kane, for charging fees of up to nearly $300 a year on a typically $500 limit card that could only be used at Horizon's online store.
The CFPB said it was asking the court to end Horizon's and Kane's conduct and pay a fine that would go to victims.
The lawsuit alleges that Kane and the company lured financially-vulnerable families with deceptive advertising into signing up for the card, which was actually a membership program, and then sold them overpriced goods online, the CFPB said.
But the company's own data showed that 94% of its customers never made a purchase at its online store, the CFPB said.
Horizon charged customers up to $24.99 a month, or about $300 a year, which accounts for more than half of the card's $500 limit in the first year of membership, the CFPB said.
That amount exceeds the 25% cap set by the Truth in Lending Act and its regulation, the CFPB said.
Difficult to cancel
The federal agency further claims customers who tried to cancel faced a time-consuming, difficult process, requiring them to listen to numerous membership benefits and third-party offers.
Horizon had promised customers it would take as little as one minute to cancel by phone, the CFPB said.
Customers also couldn't get refunds unless they threatened to complain or contact the Better Business Bureau or their bank, the CFPB said.
Horizon advertised its fake credit cards under many names, the CFPB said, including Boost Platinum Card, Freedom Gold Card, Group One Platinum Card, Horizon Gold Card, Independence Gold Card, Innovation Platinum Card, Merit Platinum Card, Net First Platinum Card Principal Platinum Card and Focus Gold Card.
The lawsuit follows a CFPB agreement with TD Bank in the same week to pay $7.76 million to customers for harming their credit scores.
“The CFPB will continue to closely scrutinize illegal fee harvesting and price gouging, and hold individual financial executives accountable for their role in wrongdoing," Director Rohit Chopra said.