Attorney General Halts Credit Card Scams

In recognition of National Consumer Protection Week, Attorney General Spitzer today announced that his office has reached settlements with two firms accused of engaging in deceptive credit card schemes targeting consumers with poor credit histories.

"My office has been aggressively pursuing those who prey on low-income consumers seeking financial stability," Spitzer said. "Fraudulent offers of credit and other high-cost lending scams victimize those least able to afford it and further escalate the vicious cycle of debt problems."

In 1999 alone, Spitzer's office received nearly 5,000 complaints about such financial schemes, making credit-related issues the third most prevalent consumer concern in New York State.

As part of his efforts to curb dubious credit practices, Spitzer's office took action against Merrick Bank of South Jordan, Utah and Quebec-based National Credit Search (NCS).

Merrick Bank

In the winter of 1998, Merrick Bank commenced a marketing campaign in which it guaranteed to consumers looking to build a positive credit rating that they would be approved for an unsecured credit card with a $500 credit limit, and that no up-front security deposit or collateral was required.

Many consumers who paid Merrick a $90 non-refundable processing fee not understand that they had applied for a "pay-as-you-go" credit card. Consumers receiving this card immediately had their entire $500 credit limit charged to the account as a refundable "reservation fee" and were required to pay down this balance before they could make purchases with the card.

Spitzer's office also objected to Merrick's arrangement with Chase Manhattan Bank, which provided that those consumers who applied to Chase and were denied a platinum credit card with a low interest rate and a high credit limit had their applications automatically submitted to Merrick Bank. Credit cards were then issued to these consumers at an interest rate of as much as 29 percent and an annual fee ranging from $39 to $59.

Under the agreement, Merrick will not misrepresent its "pay-as-you-go" credit cards and will not open credit card accounts through any partner bank referral arrangements unless the arrangement is clearly and conspicuously disclosed in the application.

In addition, Merrick will refund the processing fee received to New York consumers who claim, in writing, that they were misled by Merrick's marketing of its "pay-as-you-go" credit card, and will notify eligible consumers of the their right to a refund.

National Credit Search

The Attorney General's Office also settled a lawsuit against NCS - which also does business as Financial Marketing Group or F.M.G.- that involved violations of federal and state consumer protection laws. Specifically, the company and its officers Howard Diamond and Lorne Eisenstat of Quebec were alleged to have used telemarketing calls and unsolicited mail to convince consumers to pay an advance fee of between $39 and $79 for unsecured credit cards that were supposed to arrive in 14 days.

None of the consumers who responded, however, received the promised credit card. Some consumers received a list of banks that NCS falsely claimed would issue them credit, while others received nothing at all. Still, others received "registration materials" - and another bill for an additional $50 - $70 - for a catalog from which the individual could purchase over-priced items.

NCS further deceived consumers into forwarding advance payments by representing its business location as Delmar in Albany County. However, the company is, in fact, located in Canada and merely rented a post office box in Delmar.

When the lawsuit was filed, Spitzer's office obtained a court order freezing $173,000 in bank accounts in Plattsburgh belonging to NCS. Last week, the Court approved a consent order and judgment ordering that these previously frozen funds be turned over to Spitzer's office to be used to make refunds for consumers. The order also bars NCS from engaging in the sale of any credit related goods or services in New York State.

Both these cases were handled by Assistant Attorney General Mark Fleischer of the Consumer Frauds and Protection Bureau.

Individuals with questions regarding the settlement with Merrick Bank or National Credit Search are encouraged to contact the Attorney General's consumer help line at (800) 771-7755.