Bank and Collection Agency Get Nailed By Another State AG

Texas Attorney General Greg Abbott today prevented a Delaware bank from targeting Texas consumers with misleading credit card offers and abusive collection tactics. The Attorney General’s settlement with Cross Country Bank Inc., now known as Applied Card Bank, and its affiliate, Applied Card Systems, ends a scheme aimed at consumers with low incomes or tarnished credit scores.

Under the terms of the agreed final judgment and permanent injunction, the defendants must comply with strict debt collection guidelines and are prohibited from misleading consumers about their cards. In addition to paying $1.3 million in penalties and attorneys’ fees to the state, the defendants must provide refunds and/or credits to eligible consumers.

“Texans will not tolerate creditors who abuse or mislead consumers,” said Attorney General Abbott. “With lower-than-advertised credit limits, hidden fees and abusive debt collection practices, these defendants gave their customers a raw deal. This settlement sets new standards, ensuring that these defendants will treat debtors fairly.”

Attorney General Abbott filed suit against the defendants in June 2004, alleging the companies preyed on consumers with no credit or bad credit ratings, urging them to apply for credit cards to improve their credit history. Through direct mail solicitations, Cross Country Bank told consumers that the cards had credit limits of up to $2,500. When cardholders received their first billing statement, however, they discovered that the company set their actual credit limit at approximately $350, a limit that many cardholders unwittingly exceeded. Consumers also found that they were assessed a $150 start-up fee, hidden charges, as well as interest rates in excess of 20 percent.

Unable to gain control of their accounts as finance charges, over-the-credit-limit fees and other charges accrued, many of the defendants’ cardholders fell into a downward spiral. An affiliated company, Applied Card Systems, would thereafter begin an unlawful collection effort, harassing the cardholders with repeated and sometimes threatening or obscene telephone calls.

Restitution is available for consumers who received unsecured credit cards from Cross Country Bank between Jan. 1, 2002, and July 30, 2004, exceeded their credit limit within 17 days of the first billing date, but who did not use their credit card more than 17 days after the first billing date. Eligible consumers will automatically receive a credit of all charges, fees and other amounts the company charged cardholders, excluding actual goods and services purchased with defendants’ credit cards.

Cross Country Bank must contact credit reporting agencies to provide updated and corrected information for each eligible consumer. In addition, eligible consumers who made payments that exceeded their actual purchases may file a complaint with the Attorney General or Cross Country Bank within 75 days of today’s court filing to receive a refund of the difference.