ST. PAUL, Minn. – Minnesota Attorney General Mike Hatch has taken credit card issuer Capital One to court alleging deceptive credit card marketing and management practices. The card issuer has become widely known, and had a good deal of success, with a series of television ads which depict marauding barbarians threatening consumers who are about to make purchases with other issuers' cards. "Capital One aggressively markets its brand image as the credit card company with the nation's lowest fixed rates," Hatch said when announcing the suit. "But that image is false. If you do something as simple as pay a day late, your rate with Capital One can sky-rocket overnight." The case, which borrows some of its notoriety from the company's successful ad campaign, is of note because it attacks what have become some of the more popular card management strategies among major issuers, such as trip wire penalizing interest rates and raising the interest rates on cards because a consumer might have been late on other accounts. "Capital One has cooperated fully with the investigation and believes it has acted properly and in full compliance with the law," said Tatiana Stead, a spokeswoman for the card issuer. "We regret the attorney general has chosen to proceed with the lawsuit, but we intend to continue to cooperate with his office." The issuer had no detailed statement on its Web site as of press time. The attorney general's case highlighted three areas of what he alleged is abuse from Capital One: the television ads and their promises, the issuer's direct mail campaigns and customer service scripts that the attorney general alleged are designed to keep consumers from finding out about the card issuer's policies. "Capital One runs television ads with the same basic format, script, graphics and visual punch line designed to create the false and deceptive impression among consumers that its competitors' rates will increase, but Capital One's rates will not," the attorney general office noted. In Capital One's "No-Hassle" ads, for instance, two people compete to pay for lunch, one with a competitors' card, the other with a Capital One card which has a "low and fixed" rate. When the man with a competitor's card asks what's going to happen to his rate, he is physically shot upward by a catapult operated by barbarians. Capital One then orally and visually tells consumers that it offers the nation's lowest fixed rate at 4.99%. The attorney general alleged that the issuer's direct mail campaigns bolster its false television ads with deceptive direct mail solicitations. In one solicitation, for instance, the attorney general said that Capital One describes its 4.99% interest rate as "low" 13 times and as "fixed" 17 times. The case also highlighted the experience of consumers. Nicole Bourgeois and her husband, of Zimmerman, Minnesota, opened a credit card account with Capital One in July of 2003, according to court papers. Bourgeois had seen a Capital One television ad offering low, fixed-rate credit cards. Based on the ads, she understood the term "fixed" to mean that the low fixed rate would not change for the life of the card. Bourgeois tried to make sure that the rate would stay fixed when she called the company because of all the trouble of moving the balances of her other cards and closing the accounts, according to court papers, and so had been surprised in March when she opened her statement to see that her rate had been increased to 14%. She called the company to ask why and was told it was because she had made one late payment. The case also told the stories of other consumers, including those whose rate had been raised because, they were told, they had used their cards "too much" and others who were told it was because they had exceeded their credit limit on some of their other cards. But the consumers objected that they had not done so and that that Capital One should have told them in advance about the rule. News about the Capital One case circulated among some credit union card executives with several saying privately that they were investigating how they might use the case to strengthen their own marketing and retention efforts. None would speak for the record but one observed that the case would help him build the case for his credit union's card program being significantly different than those of the big issuers. "We have already started to point out to members that we don't do anything like that," he said. "Keeping their card account with us means that they don't get taken." -

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