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The void left by the demise of subprime credit cards helps explain why many nontraditional lenders are looking for new ways to cater to Americans with shaky credit histories.
June 27 -
Consumer groups are still angry over the Consumer Financial Protection Bureau's decision to revise a rule on credit card fees in light of a recent court ruling. But others say it was a smart play for an agency that must pick its battles.
April 27 -
First Premier Bank, a Sioux Falls, S.D., unit of United National Corp., agreed Wednesday to refund $4.5 million to customers and pay $105,000 of penalties to the New York State Attorney General's Office to settle allegations that it used illegal and deceptive practices to market subprime credit cards.
August 16
Consumers who are looking for a new credit card can turn to at least 19 different websites to do comparison shopping.
These sites often have a stake in persuading their visitors to sign up for particular cards . For example, they may receive a referral fee from the card issuer when their visitors click through to apply. However, those ties have largely escaped public attention.
Now a lawsuit brought by First Premier Bank, a subprime credit card issuer, against the parent company of CardHub.com is shining a light on the underbelly of card marketing.
On its face, the case is a somewhat mundane matter of trademark law. But the dispute also exposes larger questions about how much influence card issuers wield over the content of consumer-oriented websites that are often thought to be independent.
Odysseas Papadimitriou, the chief executive officer of Evolution Finance, which owns CardHub, has a complicated history with First Premier.
For a time, his company profited from First Premier's advertisements, though Papadimitriou insists that the advertising side of his company is independent from the editorial side. Today the business relationship between the two firms is over, and Papadimitriou is arguing that First Premier's cards are a bad deal for consumers, and that better options are available even to those with damaged credit.
While CardHub.com lists information about the fees and interest rates on First Premier cards, many competitor sites do not, he says.
"It appears that most major comparison websites have gone along with their demands, and do not show their fees and rates," Papadimitriou says. "That's where consumers are just totally in the blind."
Until early 2011, CardHub received an $8.50 commission whenever a visitor to its website clicked through to First Premier's site and signed up for a card. But since that arrangement ended, the companies have been squabbling about what CardHub can say about First Premier on its site.
CardHub.com lists terms and conditions of First Premier's cards, including the fact that the First Premier Bank MasterCard credit card carries a $95 up-front processing fee, a $75 annual fee in the first year, a 36% annual percentage rate and a credit limit of just $300. There's no dispute about the factual accuracy of that information, which came from First Premier's website.
During part of the last three years, CardHub has also included "Apply Now" links to the First Premier website. The comparison site removed those links after the lawsuit was filed in April.
Darrin Graham, vice president of marketing at South Dakota-based First Premier, says that the lawsuit is meant to ensure that consumers don't conclude erroneously that there's a business relationship between First Premier and CardHub. He denies that First Premier is trying to control what people or websites say about the company's products.
"It's not an issue of us trying to keep information about our products off the Internet. We just don't want somebody to be confused and think they are affiliated with us," he says.
But Papadimitriou argues that the trademark claim is a red herring. He notes that First Premier uses direct mail and email to market to consumers, and says it is bad for First Premier's business if prospective customers can easily compare their options online.
"They have been harassing us for quite some time with nasty letters, but we haven't removed their cards from CardHub," he says.
Some of CardHub's competitors have taken different approaches.
Ted Rossman, a spokesman for Bankrate, Inc., said in an email that CreditCards.com, which Bankrate owns, does not include First Premier's rates and fees because First Premier asked that the information be removed. He said there were no threats made.
Jennifer Ayala, a spokeswoman for NerdWallet, another comparison site, said that NerdWallet made an editorial decision a few years ago not to include information on First Premier cards because the site felt the cards were not a good fit for consumers.
Still, a
Curtis Arnold, founder of CardRatings.com, said that First Premier decided to sever its advertising relationship with CardRatings after the company included First Premier in
"In my opinion, their card is still a total rip-off, and they need to be exposed," Arnold said in an interview.
For its part, First Premier says that its products provide a second chance to consumers with damaged credit, and that its cards are priced based on the risk of lending to consumers at the lower end of the credit scale.
Lawyers who specialize in trademark law offered differing views on the First Premier lawsuit.
After reading court documents filed by both sides of the dispute, Rebecca Tushnet, a professor at Georgetown University Law Center, said: "My reaction is that this is a pretty bad lawsuit that does appear to have the intent to suppress information about the plaintiff."
She also said that the suit raises First Amendment issues, explaining that if trademark law is interpreted broadly enough to require that CardHub remove information from its website, the website's free-speech rights would be implicated.
But Ned Himmelrich, a lawyer at Gordon Feinblatt in Baltimore, suggested that the lawsuit may not quite be so easy to decide. He said the case hinges on whether CardHub has been using First Premier's trademarked brand to drive traffic to its website, and thereby earn money, rather than simply listing factual information about First Premier's cards.
"There is a right to state facts," he said. "The question is: is CardHub's use more than just a descriptive use? It looks like, at times, it might have been."
