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Post date: August 15 2007

Attorney General Cuomo Announces $4.5 Million Settlement In Sub-prime Credit Card Probe

New York, NY (AUG 15, 2007) - Attorney General Andrew M. Cuomo today announced an agreement with First Premier Bank to resolve an investigation into the company's illegal and deceptive marketing of subprime credit cards to thousands of consumers statewide with poor or no credit.

Under the terms of the settlement, First Premier, based in South Dakota, will pay $4.5 million in refunds and $105,000 in penalties and costs. The company will also reform its illegal billing and deceptive marketing tactics.

"Subprime lenders like First Premier are luring financially vulnerable borrowers into unaffordable high-cost cards trapping individuals and families in a cycle of mounting debt," said Attorney General Cuomo. "This agreement ends First Premier's abusive and unfair credit card practices, sets a new standard, and provides new protections to borrowers across New York State."

Subprime credit cards like subprime mortgage loans are typically marketed to "high risk" consumers with poor or damaged credit ratings and with limited potential for repayment. Many opt for these cards to establish a credit rating or gain access to basic financial or consumer services. Instead, borrowers find themselves mired in credit card debt due to snowballing hidden fees, high interest rates, and very low credit limits.

"First Premier turned out to be an irresponsible lender," said Mel Nielsen, a 63-year-old Saratoga Springs resident, told the Attorney General's Office. "I was looking for an opportunity to move up, instead the company knocked me down with a debt trap and a false credit report." Mr Nielsen says he was trying to build back up a weak credit rating when he received First Premier's solicitations by mail claiming he was "pre-approved" for up to $2000 credit limit and two Platinum Visa cards. Mr. Nielsen applied for the cards, received a $250 credit line, and even before using the cards once, First Premier billed him upfront fees, leaving him with less than a $70 credit. Mr. Nielsen says he canceled the cards almost immediately. But, First Premier, he continued, imposed finance charges and his balance ballooned to $1000 within a few months. Mr. Nielsen says he made several unsuccessful attempts to resolve the matter with First Premier. But, when he started receiving harassing calls from a collections agency and discovered that First Premier had reported his "false debt" to the credit agencies, Mr. Nielsen called the Attorney General's Office and filed a complaint.

The Attorney General's investigation, sparked by complaints filed by New Yorkers across the state, revealed that First Premier Bank lured consumers by falsely representing they were pre-approved for a credit limit up to $2000, at "9.9% APR Fixed," and promising "no processing fee" for opening an account. The bank also solicited consumers directly, marketing subprime credit cards as gold or platinum cards, repeatedly touting their prestige and member status without disclosing the associated risks.

In reality, most consumers received a $250 - $300 credit line at a 9.9% interest rate that could more than double without notice. Even before consumers had a chance to activate or use their credit card, First Premier billed $178 upfront fees for processing the credit card application. As a result, consumers' found themselves with $70 - $120 in available credit, perilously close to the credit limit, and strapped with bills most believed they were obligated to pay. Additionally, most consumers reported their balance ballooned within a few months, sometimes from $20 to $400 as a result of hidden fees.

The Attorney General's investigation found that in addition to the $178 upfront "processing fee," First Premier charged account set-up and participation fees, annual fees, late fees, overlimit fees, credit limit increase fees as well as fees for paying online, accessing an account or additional card fees.

Under the terms of the settlement, First Premier is prohibited from charging consumers until they activate or use their credit card to make purchases or obtain cash advances. The bank is barred from fraudulently advertising or soliciting consumers in the subprime market and must refrain from marketing subprime cards as "Gold" or "Platinum" cards unless it clearly and prominently discloses associated features and risks. First Premier is also banned from promoting credit cards as having "no processing fees," if it charges consumers for applying or activating a credit card.

First Premier had discontinued the practices of misrepresenting the fees and credit limits associated with the credit card prior to this settlement. The bank cooperated fully throughout the investigation and worked with the Attorney General to resolve the matter.

Individuals who believe they might be eligible for a refund must file a complaint with the Attorney General within 90 days by calling the Attorney General's Help Line at 1- 800 -771-7755. To obtain a copy of the settlement agreement, visit
This matter was handled by Assistant Attorneys General Mark Fleischer and Joseph Wierschem of the Attorney General's Consumer Frauds and Protection Bureau.


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