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Del. Bank Fined For Credit-Card Practices
Thur, Oct 23, 2008
A Delaware bank accused of deceptive sub-prime credit card lending has agreed to pay a $304,000 civil fine to federal regulators and reimburse customers up to $850,000.
The settlement allows First Bank of Delaware to avoid higher penalties threatened by the FDIC, but the bank’s financial health would be at risk if federal efforts to halt sales of the sub-prime loans succeed, the bank said in a statement.
The Delaware bank was accused of marketing cards that didn’t “adequately disclose significant upfront fees and misrepresented the consumer's initial available credit.” One card offered “up to $3,250" in credit, without making clear that only half would be available for the first 90 days. Another card was marketed as a way to transfer debt and have it reported as “paid in full” credit to reporting agencies.
“Consumers who accepted the offer, however, were actually enrolled in a debt repayment plan and did not receive a Visa card unless they paid 25 percent to 50 percent of their charged-off debt over a 12-month period. For the few consumers who did so, the credit card they received had nominal available credit,” the FDIC said.
In a statement today, Alonzo J. Primus, chief executive officer of the bank, stated: “We are pleased to be resolving our issues with the FDIC, including withdrawal of the related administrative actions which specified higher potential penalties. We look forward to continued development of a unique suite of products and services which we will directly offer to our expanding customer base.”
Earlier in the case, the Brandywine Hundred-based bank had said the loans provided an important service to consumers with poor credit, and that it remains "committed to providing access to credit to these under-served consumers."
First Bank of Delaware has two branches in New Castle County, a loan production office in Lewes and offers a variety of loan and card products nationally. In its third-quarter earnings statement released today, the bank reported profits of $925,000, or 8 cents per diluted share, compared to $2.4 million, or 21 cents per diluted share, for the third quarter of 2007.
The bank’s shares were down more than 8 percent in over-the-counter trading this afternoon.
“In order to comply with the Consent Agreement and Order, it will be necessary for us to change our operations, particularly with respect to our national consumer products division,” the company said in a filing with the Securities and Exchange Commission earlier this month. “These changes, as well as the other direct and indirect costs of complying with the Consent Agreement and Order, are likely to have a material adverse effect on our results of operations and may have a material adverse effect on our business or financial condition.”
Source : http://www.delawareonline.com/
