Continental Finance Company, a subprime credit card servicer, has agreed to refund $2.7 million to customers, according to a consent decree signed with the Consumer Financial Protection Bureau. The refunds will be paid to an estimated 98,000 consumers, and Continental will also pay a $250,000 civil penalty to the CFPB. The consent decree can be found here.
Continental markets a variety of credit cards to consumers with poor credit. Such consumers often have a history of late payments and lack access to more traditional cards. The Continental cards have a low credit limit and high upfront fees along with hefty fines for late fees and cash advances. Some refer to the cards as “fee harvester” cards. The interest rates are high but do not generate much revenue since the credit limits are so low, but companies like Continental can generate profits from the high fees. The CFPB found many of these fees to be illegal on cards issued between April 2012 and July 2013.
According to the CFPB, Continental violated the Credit Card Accountability, Responsibility, and Disclosure Act which caps total annual fees at 25 percent of the card’s credit limit in the first year. Most Continental cards had only a $300 credit limit which limited the first year fees to $75. Many of Continental’s fees met the 25 percent maximum immediately upon issuing the card. Then, Continental charged a $4.95 “paper statement fee” each month.
The CFPB also alleges that Continental engaged in deceptive practices by stating that the “paper statement fee” would only be charged if consumers elected a paper statement while in reality many card holders were charged the fee automatically unless they opted out. In addition, Continental stated in some consumer cardholder agreements that security deposits consumers provided for certain credit cards would be “FDIC insured” when they were not.
“Continental Finance misled consumers and charged them illegal fees,” said CFPB Director Richard Cordray. “These excessive fees are especially harmful because the cards were targeted to consumers with subprime credit who are often economically vulnerable. We will act to protect people who are wronged in this market.”
The consent order requires Continental to swiftly grant credits to affected cardholders or to send checks. Consumers are not to be required to do anything to be repaid. Also, in addition to paying the civil penalty, Continental will be subject to continuing CFPB supervision which may include “examinations of the company and monitoring by the CFPB for compliance with consumer financial protection laws.”