The Federal Trade Commission (FTC) has filed a lawsuit against subprime credit card lender CompuCredit and its subsidiary debt collection company Jefferson Capital Systems, on charges that it lured customers into purchasing high-fee, low-limit credit cards without disclosing the fees or restrictions.

According to the FTC complaint, CompuCredit, operating under its many brand names, including Aspire, Majestic, FreedomCard, and Fingerhut Credit Advantage, used direct-mail solicitations, extensive telemarketing, and Internet advertising to market its credit cards to "subprime" consumers.

CompuCredit and Jefferson Capital were charged with violating the FTC Act and the Fair Debt Collection Practices Act (FDCPA). Among the charges:

• CompuCredit marketed to consumers with subprime credit ratings a Visa credit card with a $300 credit limit, and claimed that certain upfront fees were waived. "In fact, CompuCredit assessed approximately $185 in up-front fees and reduced the available credit to $115. CompuCredit's ultimate disclosure of the fees in its accompanying Summary of Terms did not cure the deception," the agency said.

• CompuCredit also marketed a Visa card with a credit limit allegedly up to $3,250 for customers with slightly better credit ratings. But the company did not disclose that half of the available credit would be withheld for the first 90 days. CompuCredit also failed to disclose that for the first 90 days, the company would monitor consumers' purchases, and might reduce their credit limit based on an undisclosed "behavioral" scoring model.

• CompuCredit and Jefferson Capital marketed a third type of card to consumers with "charged-off" debt, claiming that the debt balance would be transferred to the new card and immediately recorded as paid in full.

"In fact, consumers did not qualify for the new cards until they paid 25-50% of their old debt balances," the agency said. "Further, even if they paid the required portion of the old debt balances the credit lines received only equaled 5% of the original debt amounts."

The FTC complaint described how CompuCredit went to great lengths to hide the fees and restrictions attached to their card offers, such as burying the fee information in very small type on the backs of direct-mail solicitations, and having call-center operatives avoid the subject by discussing the card's APR during solicitation calls. Jefferson Capital would also call customers at all hours, as well as at their place of employment, and operatives would use abusive language.

"It is important for all consumers including those in the subprime market to have access to credit card product," said Lydia Parnes, director of the FTC's Bureau of Consumer Protection. "But the marketing of these products must be truthful; it should not and cannot be misleading about the true costs and terms of the credit card."

Old problems

CompuCredit's various cards and offers have been a regular source of complaints from ConsumerAffairs.Com readers.

Sylvia of Alamosa, Colorado wrote in to say that "I just received the fourth phone call about a past due balance. I have not bought any merchandise since December and it has all been paid off." Sylvia, who was solicited for an insurance policy through CompuCredit, operating as Fingerhut, said that, "I have a suspicion Fingerhut will keep billing me, harassing me at work and failing to make note of my reasons for not wanting the coverage."

Ryan, of New Hudson, Michigan was billed over $150 on his Aspire Visa card for a purchase of $30, which he paid. " I told them to cancel the card and send me an Itemized bill of my purchases, " he wrote. "Well, they never did. Now I am being sued for over $600.00 plus attorney and court fees."

The state of New York in 2006 sued CompuCreditCp and its partner Columbus Bank & Trust for failing to disclose hidden fees on the cards they sold, engaging in improper debt collection practices, and enrolling customers in third-party programs without their knowledge, then billing them for renewal fees.

Columbus Bank and CompuCredit agreed to pay restitution of $11 million to cardholders, and $525,000 in fees and court costs to New York.

Even with its legal headaches, CompuCredit and other subprime card lenders have continued to rake in healthy profits through incessant marketing of "fee harvester" credit cards--cards with many hidden fees and penalties that unwitting customers pay. A 2007 report from the National Consumer Law Center (NCLC) found that CompuCredit alone had collected $400 million in fees from customers who, in turn, were saddled with $1 billion in debt.