Bill of Rights for Credit Card Customers
The Federal Deposit Insurance Corporation (FDIC) entered into a settlement with Advanta Bank Corporation in connection with deceptive and unfair practices in violation of the Federal Trade Commission Act. The settlement provides that Advanta agrees to an (fdic-advanta-order) order to cease and desist, to pay a civil penalty in the amount of $150,000 and restitution of approximately $14 million to small businesses that used Advanta’s Cash Back Reward Program and $21 million to those small businesses whose accounts were re-priced. Advanta admitted no wrongdoing in connection with the order.
Advanta’s “Cash Back Reward” program advertised a cash rebate on a percentage of eligible purchases for small business credit card holders. The cash rebates were tiered, the promoted rebates were not available for all purchases and it was effectively impossible to earn the cash back reward payments that were promoted. The FDIC concluded that Advanta’s marketing material was likely to mislead a reasonable customer, that these marketing misrepresentations were material and therefore constituted a pattern of deceptive practices explicitly prohibited by the Federal Trade Commission.
The FDIC also determined that Advanta had imposed, in an unfair manner, substantial annual percentage rate (APR) increases on the accounts of small business owners who had neither exceeded their credit limits nor were delinquent on their account payments. The FDIC concluded that Advanta had failed to give adequate notice to small business account holders of the increase in APR, had failed to properly notify them of the amount of or the reason for the increase and the means to opt-out and the consequences of opting out. This surreptitious re-pricing caused substantial harm to small business customers, who were kept in the dark as to how to reasonably avert the harm.
I spoke with David Barr of the FDIC and thank him for informing this blog posting. I did not understand the nature of the FDIC’s authority in this matter as I did not understand Advanta to be a deposit-taking institution. Mr. Barr explained that many banks issue credit cards that do not accept deposits but, nevertheless are regulated banks. Advanta Bank Corp., based in Utah, is a state non-member bank for which the FDIC is the primary regulator. I also asked Mr. Barr to explain the process by which these allegations of abuse came to the attention of the FDIC for investigation and subsequent enforcement action. I have reported issues of concern to my small business, unrelated to Advanta, to the Federal Trade Commission (FTC) with disappointing results. The FTC has to see a widespread, broad pattern of abuse before it will examine the allegations and, as you can imagine, given the widespread issues of concern to consumers, their threshold for response is quite high.
Mr. Barr explained that a small business owner, or individual consumer, can go to the FDIC’s website, www.fdic.gov, and file an online complaint against a regulated bank. If you are not certain which agency oversees your bank, the FDIC will forward your complaint to the appropriate regulator. If the FDIC is the regulator, it will give a copy of your complaint to the bank for its response and open an investigation. So what I learned is that it is likely more effective to raise such issues with the FDIC than with the FTC. The FDIC can take enforcement action against regulated banks for violations of the Federal Trade Commission Act. The other takeaway from my conversation with Mr. Barr, unrelated to Advanta, is that when a natural disaster strikes a community, the FDIC issues a financial institutions letter to the banks it regulates that operate within the disaster area, urging forbearance in dealing with customers during the disaster recovery period. So thanks to the FDIC for this helpful information.