Subprime Credit Card Company Must Refund $2.7 Million in Excessive Fees to Customers
On Wednesday, the Consumer Financial Protection Bureau ordered subprime credit card company Continental Finance Company LLC to pay $2.7 million in refunds to its customers for misrepresented services and excessive fees. The order also mandated the Delaware-based company to pay $250,000 as a civil penalty for their actions.
The CARD Act of 2009 prohibits credit card companies from charging consumers fees that exceed 25% of a card’s credit limit during the first year after opening an account. Continental Finance offers subprime credit cards with low limits and high upfront fees. The most popular cards from the company include the Matrix Card, the Cerulean Card and the Verve Card. All of these subprime cards have a $300 spending limit and a $75 fee, which automatically meets the 25% cap.
But Continental Finance continued to collect other fees on the cards after the signup, a violation of the CARD Act. The CFPB estimates more than 98,000 consumers were affected by Continental Finance’s “fee-harvester” credit card practices.
“Continental Finance misled consumers and charged them illegal fees,” said CFPB Director Richard Cordray in a statement. “These excessive fees are especially harmful because the cards were targeted to consumers with subprime credit who are often economically vulnerable.”
The CFPB found violations from April 2012 to July 2013, mostly related to misrepresented or illegal credit card fees. The organization also noted that Continental Finance claimed to be FDIC insured during some times when they were not insured.
Under the order, Continental Finance must refund all 98,000 customers for the illegal fees they paid. The refund must be processed in a method that is convenient for the consumer. The order would also set limits on the fees and practices Continental Financial would have to abide by in the future.