Thursday, February 5, 2015

CFPB Enters Consent Order with Subprime Credit Card Company Requiring Refund of Approximately $2.7 Million in Credit Card Fees

The CFPB has entered into a consent order with Continental Finance Company, LLC requiring Continental to refund approximately $2.7 million dollars in credit card fees.  The Consent Order finds that Continental made false statements regarding certain fees charged to consumers in connection with the credit cards and misrepresented that certain security deposits would be FDIC insured when they were not.  The Consent Order requires Continental to provide a full refund to consumers, pay a $250,000 civil penalty and subject themselves to CFPB monitoring for at least five years.

Continental is a subprime credit card originator, marketer and servicer.  The company designs and markets credit cards targeted to the subprime market.  Usually, the credit cards provided an initial $300.00 limit to consumers.   Under the CARD Act, the company was prohibited from charging consumers fees that exceeded 25% of the credit limit during the first year after opening an account; however, the company charged an upfront fee of $75.00 and additionally charged certain consumers with fees in excess of the cap.  Continental also represented that consumers would only be charged a monthly paper statement fee of $4.95 per month if they elected to receive paper statements; however, Continental automatically charged the fee unless consumers followed certain on-line opt out provisions.  Finally, Continental stated in some consumer cardholder agreements that security deposits consumers provided for certain credit cards would be FDIC insured when for a time period, many were not.

The Consent Order requires Continental to refund the fees in excess of the CARD Act limits.  Continental is required to reserve or deposit into a segregated deposit account approximately $2.7 million dollars for payment to consumers.  Continental is additionally required to provide processes as part of its Redress Plan as to how consumers will receive their refund – either by check, credit to their account or both, depending on the circumstances.  The Consent Order further requires Continental to pay to the CFPB a civil penalty of $250,000.  Continental is additionally prohibited from charging illegal fees in excess of 25% of the consumer’s credit limit in the first year of the account, from making misrepresentations as to the fees associated with their credit cards, as well as whether the consumers’ funds are covered by the FDIC or other deposit insurance. Additionally, Continental must create, for at least five years, business records that demonstrate full compliance with each provision of the Consent Order, all documents and records pertaining to the Redress Plan and copies of all cardholder agreements, sales scripts, training materials, and marketing materials, including any materials used by a third party on behalf of Continental.  The company will also be subject to compliance monitoring by the CFPB.  The Consent Order will be in effect for at least five years.

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