Credit cards issued by a privately insured credit union affiliated with the Illinois Credit Union League received a CFPB fine for violating servicing rules.
According to a consent order published Wednesday, the Continental Finance Company LLC lied to consumers about the card fees and about whether security deposits made for some of the cards carried FDIC Insurance. The company also violated the Truth in Lending Act by requiring consumers to pay more than 25% in fees during the account's first year.
Consumer groups opposing abusive credit card practices labeled the cards “fee harvesting” cards, saying they have low limits and high fees.
According to the consent order, Continental contracted with an unnamed, privately insured credit union for 20 months, from April 2012 to December 2013, to issue cards in the credit union's name. During that time, the credit union issued more than 290,000 cards.
The relationship between the Naperville, Illinois, Services Credit Union and Continental Financial, as well as its league affiliation, first drew attention in 2013 when consumer advocates included the credit union's card on a list of cards advocates considered the most abusive of consumers.
Services Credit Union has no website, but its address and phone number are the same as that of the ICUL and it lists Sean Hession, president and CEO of the ICUL as its manager.
Further, in June 2013 when the CU Times asked for an interview about the relationship between Services and Continental Financial, the league denied the interview request on the grounds an interview would discuss a proprietary and confidential agreement between the company and Services.
The Illinois Credit Union League did not immediately comment on the CFPB's consent order.
According to the consent order, the credit union would issue the Continental cards then immediately turn over all receivables to the company for funding and servicing.
“Once the credit union assigned its rights, Continental serviced the accounts from billing to collections, advanced all funds to consumers, and received all fees assessed pursuant to the Continental Card cardholder agreements,” the agency wrote in the order. “As the servicer, Continental was a party to all Continental Card cardholder agreements with consumers issued under the agreements between Continental and the credit union.”
Those agreements included language that said consumers could apply for credit limit increases after their first year with the card, but would have to pay a $30 fee for every $100 of increase. The company denied that it actually charged consumers those fees.
The CFPB also said Continental unfairly charged consumers $4.95 per month for choosing to receive paper statements but did not offer any option. The agency also said Continental had taken deposits for some secured cards and told the consumers the FDIC would insure the deposits when it did not. However, the CFPB did acknowledge no consumer lost funds due to the lack of coverage.
The CFPB ordered Continental to repay consumers $2.67 million and provide an explanation to credit reporting agencies if the card affected consumer credit. Continental must also pay the CFPB a fine of $250,000.
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