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How Credit Card Companies And Credit Repair Firms Deceive Consumers

In the credit card world, scam operators are taking money from innocent customers without adding value, misrepresenting claims and simply performing shoddy service. Fortunately, customers have an avenue to complain and the FTC has also taken pretty tough actions. Below are some examples of the actions that the FTC has taken against some shady companies. After reviewing these examples, you will realize a common thread among these cases and at the end, I would like to conclude by making a few points on how to avoid being susceptible to such scams. So let’s begin.

FTC vs CompuCredit

CompuCredit is a company that issues sub-prime credit cards (i.e., credit cards for bad credit folks). Below are some of the charges (which they eventually settled) made by the FTC.

Fee-based Visa with $300 limit

The FTC charged CompuCredit for deceptive marketing of their Visa credit cards to consumers with subprime credit ratings. These Visa Cards, which include the Aspire Visa credit card and the Aspen credit card, were marketed in such way to make consumers believe that they would get a credit card with $300 credit limit and with no up-front fees. Instead, CompuCredit immediately charges consumers as much as $185 in fees that it did not adequately disclose. These fees left consumers with as little as $115 in available credit. These fees include:

• One time application fee
• One time processing fee
• Annual fee (which was also billed immediately)
• Monthly Maintenance fee!

Left out fine print in credit line offers

CompuCredit also marketed to consumers with slightly higher credit scores its Visa credit card offering up to $3,250 in available credit. CompuCredit failed to disclose adequately, that half of the available credit would be withheld for the first 90 days. CompuCredit also failed to disclose that for the first 90 days, the company would monitor consumers’ purchases, and might reduce their credit limit based on an undisclosed behavioral scoring model.

Debt-transfer Visa program

This one was the worse of all. CompuCredit and Jefferson Capital marketed a Visa credit card to consumers with charged-off debt. They represented that the consumers’ old debt balance would be immediately transferred to the card and reported to consumer reporting agencies as paid in full. Consumers who accepted the offer, however, were immediately enrolled in a debt repayment plan and did not receive a Visa card until they paid 25 percent to 50 percent of their charged-off debt.

FTC vs Credit Repair Firms

The FTC has also targeted scores of credit repair firms for deceptive marketing and business practices. Late last year, the FTC cracked down on 33 firms offering credit repair services. Most of these firms made the following outrageous claims:

1. That they can even remove accurate, negative items from your credit report — This is simply not true in most cases. Things like bankruptcy can stay on your report for as long as 10 years.
2. Getting “up front fees” and keeping the fees for themselves instead of actually providing the service — It is actually against the law to collect fees before performing any credit repair work. By the way, cleaning and disputing inaccurate credit reports is actually one of the easiest things to do.
3. Deceptive promises over the phone — The FTC posed as consumers responding to ads from firms like American Credit Experts, Inc. They were told that “everything surrounding your bankruptcy will be removed and late payments are very easy to remove! Turns out that they charge $39.95 to $59.95 initially, then $59.95 per month for their promised services. For this fee, they sent the major credit reporting agencies repeated dispute letters on consumers’ behalf with vague statements about each disputed debt or bankruptcy record, with no explanation or documentation. They keep disputing items even if the credit bureaus and creditors have verified them. And they profit by continuing to charge the monthly fee to their ripped off clients.

Deceptive Radio Ads

Hargravecard.com was charged for deceptively offering an advance-fee credit card for $100 to $300, by claiming that applicants are guaranteed for a credit limit ranging from $500 to $10,000. What they did was against the Telemarketing Sales Rule because they received a fee in advance of consumers obtaining a credit card. This was also against the FTC Act by falsely telling consumers that they will receive a credit card after paying a fee. Still people fall for these.

Another firm Advantage Credit Repair LLC advertised on myadvantagecredit.com and Yellow Pages ads. They claimed that “they will never charge a large up front fee or make you wait a long period of time to refund your money if we do not get results. You WILL see results in 60 days, or your money will be refunded in full “. But they actually charge $495 per person of which $219 or $269 was required in advance! The FTC found out that most of their refund request was denied!

Common Threads

If you look at this case carefully, you will realize that there are a few common threads here.

1. Most of the deceptive terms are hidden under the fine prints (i.e., the terms and conditions). Unfortunately, we all know that most people do not read the terms and conditions.
2. Companies rely on catchy headlines that prey on human emotions. In the case of these sub prime cards, it is to get easy credit approval, no credit checks, or instant fast approval.
3. Full upfront fees are not disclosed. The biggest shock is that the full upfront fees are not told to consumers. Because if they were revealed up front, sales will drop dramatically.

These practices are not just confined to the credit card industry. But instead, it is practices in so many businesses. For example, take cable companies. How many bait and switch tactics do you see on TV ads everyday? Get bundled service for only $X for 6 months, but what they don’t tell you is all the fees after that. Another example is weight loss programs. Just look at the promises and testimonials. Lose X pounds in 3 months. Gimme a break. How about get rich quick stock trading programs? Many of us fall for these too easily.

How to avoid marketing scams or deceptive marketing?

Well, I guess that is the six million dollar question.

1. Read the fine prints — This is so elementary, but so crucial. Take the extra 10 minutes to go through them.
2. Never fall for headlines — In my opinion, it’s fine to read an ad if there is a catchy headline. But be very skeptical of their claims. As an example, beware of the “as low as” headline! Many low interest credit cards claim your rate could be “as low as X%”. Truth is that you may get that rate if you have excellent credit. For most folks, that “as low as rate” is just not realistic.
3. Research a product way ahead of time – Researching a product that you are looking to buy will ensure that you are much more likely to make the right decision. But more importantly, you have to research ahead of time. If you don’t, you will be more tempted by and deceived by great marketing headlines.
4. Avoid offers that are too good to be true – Lastly, if you take a look at products that have promises that are too good to be true, whether it is “no credit checks”, “instant approval credit cards”, “get rid of negative reports”, or “lose 50 pounds in 8 weeks!”. There are usually better alternatives. For example, instead of using sub-prime credit cards mentioned above, you are better offer getting a secured credit card or prepaid credit cards. Better still, learn to improve your credit score so that you’ll be eligible for normal credit cards.

We all make mistakes. The important thing is that we learn and be careful as a consumer.