A credit card servicer and marketer will refund the initial $125 fee it charged to each of hundreds of New Yorkers as part of an agreement with the state’s attorney general.

What happened

A complaint from a consumer launched an investigation of the company by Attorney General Eric T. Schneiderman’s office, which found problems with the company’s direct mail marketing materials.

According to the attorney general, the company offered a “Surge” credit card with a low-limit line of credit marketed to New York consumers. The direct mail marketing materials contained six pages, four of which were in full color and promoted various features of the card. An “initial credit limit of $500” was “prominently” featured in several places in the advertisement, “typically in a large color font,” according to Schneiderman’s office.

For example, four references to the $500 initial credit limit appeared on just the first two pages, and the limit was listed first of four features of the card on the second page. None of the references contained any qualifiers, asterisks or other notations signaling that other terms existed that might impact this limit, the attorney general said.

In reality, the company charged those who signed up for and received the Surge card a “first year fee” of $125, immediately depleting the promised $500 and leaving the consumer with initial credit of just $375, Schneiderman alleged. Although the fee was shared as one of the terms in the required federal disclosures, that table followed multiple pages of marketing materials that omitted the upfront fee and was insufficient, the attorney general’s office said.

To settle the charges of deceptive marketing, the Delaware-based company agreed to change its marketing materials to prominently disclose the upfront fee and refund the $125 initial annual fee to the more than 150 New York consumers who paid it.

“Misleading credit card marketing can have a disastrous domino effect for New York consumers, particularly for those new to the credit market or with compromised credit ratings,” Attorney General Schneiderman said in a statement. The disclosures required as part of the agreement will enable “consumers to make an informed decision about their financial well-being,” he added.

To read the New York Attorney General’s Office announcement about the action, click here.

Why it matters

The New York attorney general’s action provides an important reminder that companies in compliance with federal law—in this case, the company disclosed the upfront fee as part of its standard disclosures—may still run afoul of state consumer protection laws. The action also is an indication that certain state regulators likely will take up the enforcement torch from the Consumer Financial Protection Bureau, which is likely to become a less aggressive regulator following the resignation of Director Cordray.