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Post date: January 25 2006

Sub-prime Credit Card Issuer Ordered To Pay

Attorney General Spitzer today announced that Cross Country Bank, one of the nation's largest subprime credit card issuers, was ordered to pay approximately $9 million in restitution and penalties for engaging in fraudulent, deceptive and illegal practices.

The decision is the latest in a series of favorable court rulings that Spitzer has obtained against the bank. In June 2004, the late State Supreme Court Justice Joseph R. Cannizzaro ruled that Cross Country Bank and its debt collector, Applied Card Systems, both of Wilmington, Delaware, engaged in fraud, false advertising, deceptive business practices and abusive debt collection practices.

"This office will aggressively pursue any lender using false and deceptive promises to profit on the backs of consumers with poor or limited credit records," Spitzer said.

Supreme Court Justice Thomas J. McNamara, who was assigned the case after Justice Cannizzaro's death, ordered Cross Country Bank to pay nearly $8 million in civil penalties. The decision also orders the bank to pay restitution to thousands of New Yorkers injured by its fraudulent and illegal acts.

Justice Cannizzaro's June 2004 decision ordered Cross Country Bank and Applied Card Systems to halt all of the illegal practices cited in Spitzer's lawsuit and scheduled further proceedings to determine the amount of restitution and penalties. Last month, the Appellate Division, Third Department, issued a unanimous opinion upholding that decision.

The Attorney General filed a lawsuit in 2003 alleging that Cross Country Bank used deceptive credit card solicitations to target consumers with poor credit records, offering credit lines of up to $2,500. The vast majority of consumers, however, received only about $400 in credit, much of which was immediately applied to fees imposed by the bank, such as annual, application and monthly maintenance fees.

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

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, employed a variety of abusive and illegal collection techniques designed to harass cardholders into making a payment. These unlawful tactics included: 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 Applied Card Systems debited payments from cardholders' accounts without authorization and misrepresented payoff amounts.

In ruling on the matter, Justice McNamara determined that a penalty of over $7.9 million was appropriate for Cross Country's fraudulent, deceptive and illegal practices. According to the Judge, the penalty was warranted because "[the bank] engaged in a credit scheme, from solicitations to collections, to exploit the subprime market."

In assessing the size of the penalty, Justice McNamara considered several factors, including: the number of deceptive solicitations mailed to New York consumers; the number of New York account holders who exceeded their credit limits shortly after opening an account; the number of New York account holders who enrolled in a deceptive and valueless credit protection program; the number of New York account holders who complained of deceptive collection practices; and the enormous profit the bank made off of its victimized account holders.

Justice McNamara also ordered Cross Country Bank to refund more than $900,000
to consumers who: were assessed annual, origination, late and overlimit fees because they exceeded their credit limits within two months after opening their accounts; were enrolled in a credit protection program; paid fees to open secured credit card accounts; and/or were charged late or overlimit fees after being subjected to deceptive collection practices.

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