Why it matters
Pursuant to a consent order entered into with the Consumer Financial Protection Bureau (CFPB), Continental Finance Company must refund $2.7 million to approximately 98,000 customers and pay a $250,000 penalty to the Bureau. Continental ran afoul of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, charging customers primarily in the subprime credit market illegal credit card fees and misrepresenting other fee information. “Continental Finance misled consumers and charged them illegal fees,” CFPB Director Richard Cordray said in a statement about the case. “These excessive fees are especially harmful because the cards were targeted to consumers with subprime credit who are often economically vulnerable.” In addition to the fines, the consent order makes Continental subject to the Bureau’s supervision for the first time. As lenders begin to expand their product offerings to credit-challenged consumers, it is important to bear in mind that the CFPB has a particular focus on protecting consumers it views as especially vulnerable.
Targeting economically vulnerable populations, Delaware-based Continental offered the Cerulean Card, the Matrix Card, and the Verve Card, all with low credit limits and high up-front fees, which the Bureau characterized as “fee-harvester credit cards.”
Between April 2012 and July 2013, Continental charged customers illegal credit card fees and misrepresented certain fees, the CFPB alleged. Promotional materials informed consumers they would only be charged a monthly paper statement fee if they “elected” paper billing, for example, but Continental automatically required some customers to pay a monthly fee of $4.95 unless they affirmatively opted out.
Some cardholder agreements stated that the security deposits provided by customers for certain cards would be “FDIC insured.” The problem: the Bureau said that up to $1.8 million in funds were not actually insured by the Federal Deposit Insurance Corporation for a nine-month period.
Continental also violated the CARD Act, the CFPB said. The statute prohibits a lender from charging customers fees in excess of 25 percent of the credit limit during their first year after opening the account. Continental products offered consumers a $300 credit limit with an up-front fee of $75—effectively maxing out the CARD Act limits. But the company continued to charge customers additional fees over the next 12 months—including the paper statement fees—in some cases reaching total fees the first year of 42 percent of the credit limit in violation of the statute, the Bureau alleged.
For the CARD Act violations as well as the deceptive statements, the CFPB ordered Continental to refund customers $2.7 million and imposed a $250,000 fine.
On top of the monetary penalties, Continental will now be subject to the CFPB’s supervision for the first time, allowing the Bureau ongoing oversight of the company, including examinations and monitoring for compliance. The company is further prohibited from engaging in illegal practices, such as violations of the CARD Act or making misrepresentations about the fees associated with Continental credit cards.
To read the consent order in In the Matter of Continental Finance Co., click here.