CFPB Fines Delaware Company $3M for 'Fee-Harvester' Cards

WASHINGTON — A subprime credit card company in Delaware agreed to pay nearly $3 million in refunds and penalties for allegedly charging fees that the Consumer Financial Protection Bureau says violated federal law.

The consent order announced Wednesday alleges that Continental Finance Company LLC in Newark, Del., preyed on subprime borrowers with "fee-harvester" cards that were issued through a partnering credit union. The company has agreed to pay $2.7 million in refunds to about 98,000 consumers and a $250,000 penalty in addition to submitting plans for corrective actions and card agreement documentation to the CFPB for the next five years.

"Continental Finance misled consumers and charged them illegal fees," said CFPB Director Richard Cordray in a press release. "These excessive fees are especially harmful because the cards were targeted to consumers with subprime credit who are often economically vulnerable. We will act to protect people who are wronged in this market."

Continental designs, markets and services credit cards that are distributed through partnering financial institutions. The CFPB said the cards, which have low credit limits, target borrowers with the aim of racking up high fees.

The company is accused of engaging in deceptive acts or practices by giving false statements about certain fees and implying that security deposits on certain cards would be insured by the Federal Deposit Insurance Corp.

The company was also accused of violating the Truth in Lending Act because it charged fees higher than 25% of the credit limit during the first year after account opening. The order said the company went over that legal threshold by sometimes automatically charging a $4.95 fee per month to provide a paper billing statement, a $30 fee to increase the credit limit and a $75 annual fee for "maintenance and set-up." In doing so, Continental took in nearly $2.7 million in paper statement fees as of December of last year.

The order appears largely to cover activities beginning in April 2012 and relates to several Discover cards that were issued through one credit union. The order states that more than 290,000 cards were issued during this period ending July 2013, when the credit union terminated the contract and the accounts were sent to another financial institution. The order does not name the other parties but said that Continental continues to service such cards.

Continental has agreed to the order without admitting or denying the findings. In doing so, it must outline a plan to the CFPB on how it will improve compliance and pay refunds and penalties. Over the next five years, Continental must also provide the bureau with copies of all cardholder agreements and marketing materials, among other requirements.