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Post date: July 6 2004

Court Cites Bank For Predatory Credit Card Practices

In a lawsuit filed by Attorney General Spitzer, a judge has ruled that one of the nation's largest sub-prime credit card issuers engaged in the illegal practice of trapping consumers in cycles of mounting debt with fraudulent and deceptive credit card offers.

State Supreme Court Justice Joseph R. Cannizzaro of Albany County ruled that Cross Country Bank of Wilmington, Delaware engaged in fraud, false advertising, deceptive business practices and abusive debt collection practices. In issuing his decision, Justice Cannizzaro ordered Cross Country Bank to halt the illegal business practices cited in Spitzer's lawsuit.

The court will hold further proceedings to determine the amount of restitution and penalties that Cross Country Bank must pay. During the proceedings, Spitzer's office will be seeking a judgment worth millions of dollars.

"Predatory practices of lending institutions jeopardize the finances of New York residents and undermine our communities," Spitzer said. "The fraudulent scheme by this credit card company is particularly egregious due to the vulnerability of the targeted individuals - consumers with past financial problems eager to receive a credit card and rebuild their credit record."

In 2003, Spitzer's office alleged that Cross Country Bank -- a "credit card specialty bank" -- targeted consumers with poor credit records with deceptive credit card solicitations, offering credit lines up to $2,500. The vast majority of consumers, however, received approximately $400 in credit, much of which was immediately applied to fees imposed by the bank, such as annual, application, and monthly maintenance fees, which significantly reduced the already minimal amount of credit available to consumers.

The effect of the limited credit lines and compounding fees and finance charges was to trap these unwary consumers in a vicious cycle of pyramiding debt from which they could not escape.

Specifically, Spitzer alleged that Cross Country Bank:

  • Misrepresented the amount of credit available to cardholders;
  • Fraudulently induced consumers into purchasing credit insurance that was of little or no benefit to cardholders;
  • Fraudulently induced consumers to unwittingly enroll in fee-based membership programs; and
  • Misrepresented the features of its secured credit cards.

Spitzer's lawsuit claimed that, as a result of these acts, many cardholders unknowingly exceeded their credit limit, thus incurring additional $30 overlimit fees. In addition, consumers who were unable to bring their balance below the credit limit by the payment due date incurred $30 late fees.

As part of his lawsuit, the Attorney General also alleged that, after Cross Country Bank drove the cardholders into delinquency, its affiliate, Applied Credit Services (ACS) employed a variety of abusive and illegal collection techniques designed to harass cardholders into making a payment. These unlawful tactics include misrepresenting the caller's identity; making repeated, frequent and disruptive telephone calls; calling cardholders at their place of employment; using rude, insulting and/or obscene language; and making false and improper threats.

In addition, the Attorney General alleged that ACS debited payments from cardholders' accounts without authorization, and misrepresented payoff amounts.

Justice Cannizzaro found that the Attorney General presented strong evidence in support of all of his claims against ACS, and ordered ACS to cease engaging in the practices cited by Spitzer.

Individuals with complaints about credit card offers are encouraged to contact the Attorney General's consumer help line at (800) 771-7755.

This case is being handled by Assistant Attorneys General Mark Fleischer, Matthew Barbaro and Jane Azia of the Consumer Frauds and Protection Bureau.

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