Misleading Vendor Marketing Costs Missouri Bank $5 Million

A Missouri bank must pay consumers $5 million in restitution after a third-party vendor deceptively marketed balance transfer credit cards, violating section 5 of the Federal Trade Commission Act according to a Federal Reserve consent order.

Mid America Bank in Dixon, Mo., used third-party independent service organizations (ISOs) to market a variety of balance transfer credit cards to consumers. The ISOs bought debt and then marketed credit cards through Mid America Bank. In exchange for transferring their debt to the new card, the ISO would forgive a portion of the debt. The problem is that the ISOs didn’t always deliver on the promises, according to the consent order.

For example, when Mid America’s Affirm card was marketed, consumers were told the card’s credit limit would initially equal the amount of debt owed. As consumers paid down debt, credit would become available. Mid America and the ISO didn’t disclose that finance charges and fees would reduce the amount of available credit, which was misleading to consumers, the Fed says.

The bank’s Emblem card was equally troubled. Marketed through an ISO to consumers with charged-off debt, it didn’t accurately disclose that participating in the program could restart the statute of limitation on debt. This affected about 8,000 consumers with charged-off debts outside of the statute of limitations, the Fed says.

Another issue was the bank’s Pearl Card, which was sold as a way to build a positive payment record because the payments would be reported to the consumer reporting agencies. The problem is that Mid America Bank bought the portfolio from another bank that was under an FDIC consent order forbidding it from reporting consumer defaults. Since Mid America couldn’t report defaults, it decided it couldn’t report payments either, the Fed says, and didn’t tell consumers.

Mid America not only must refund fees paid by cardholders, but in some cases, must refund payments and waive the remaining transferred balance. It also must improve its consumer compliance risk management plan, particularly when it comes to products and services offered through third parties. That includes risk monitoring and internal controls, periodic compliance reviews, on-site visits and board oversight of the relationship among other best practices. They must also approve all consumer marketing and communications.