Feds Name CompuCredit and Collector Jefferson Capital in $200 Million Suit

As previously expected, Atlanta-based subprime credit card marketer CompuCredit Corporation (Nasdaq: CCRT) was named Tuesday in a joint FTC-FDIC probe into its marketing and debt collection tactics. Jefferson Capital Services, a wholly-owned debt collection subsidiary of the company, was also charged with violations of the Fair Debt Collection Practices Act.

The Federal Trade Commission and Federal Deposit Insurance Corporation jointly announced the action at a press conference in Washington, D.C. Tuesday afternoon. The Wall Street Journal ran an article Tuesday claiming that CompuCredit would be the card company named in the probe. The article said that the Feds could seek as much as $100 million in fines and restitution against the company.

But an FDIC spokesman told reporters Tuesday that total fines and restitution paid in the probe could reach $200 million. Also named in the action were Wilmington, Del.-based First Bank of Delaware and Brookings, S.D.-based First Bank & Trust, banks that CompuCredit used to issue their subprime credit cards.

Columbus Bank & Trust, a Georgia bank that was also part of the investigation, settled with the federal agencies, agreeing to pay a $2.4 million fine and to set up a $7.5 million restitution fund.

Thomas Curry, a member of the FDIC’s board of directors, said that the lawsuit could affect "hundreds of thousands of consumers."

At issue is the manner in which CompuCredit sold its credit cards to consumers with poor or no credit history. The company would offer an unsecured card with a credit limit of $300 to subprime customers. CompuCredit would then charge the consumers fees of up to $185 without disclosing the fees, effectively dropping the available credit down as low as $115. The FTC claimed this would often lead to additional charges as customers exceeded their credit limit in the first month.

The FTC also said that CompuCredit’s collection agency, Jefferson Capital Services, violated the FDCPA by “misrepresenting a debt collection program as a credit card offer and using abusive collection tactics such as making debt collection calls to individual consumers more than 20 times per day, including before 8 a.m. and after 9 p.m., and on Sundays.”

Jefferson Capital was created by CompuCredit in 2002 and has been very active in the debt buying sector since.

CompuCredit vigorously denied the allegations and said that it was puzzled by the charges. Before the suit was formally announced, the company issued a statement on the Journal article asserting that the charges were “untrue and without merit.” After the announcement, a CompuCredit spokesman specifically addressed the matter in the media.

"We are going to vigorously oppose this," said Bill Marks. He noted that the FDIC didn’t challenge similar practices and marketing materials that CompuCredit used in 2002 when it worked as a contractor to a failed bank, Nextbank, that the FDIC took over as a receiver.

"They contacted us. They were our customer," Marks said of the FDIC. "That doesn’t make sense."

CompuCredit’s stock has rebounded slightly in early trading Wednesday, gaining 3 percent after dropping nearly 30 percent on Tuesday to a 52-week low.