As I say, this saga started two years ago when the FDIC found itself blindsided by news of a settlement between then-New York Attorney General Eliot Spitzer and CompuCredit and Synovus, one of the banks involved in the complaint yesterday. Soon after being shown up by Spitzer, the FDIC announced it was starting its own investigation into CompuCredit’s marketing practices.

What they've come up with

Now, two long years later, the FDIC and FTC finally think they’ve come up with something. In particular, they claim CompuCredit and the banks named broke the rules on a number of fronts.  The agencies cited four specific examples:

CompuCredit offered a credit card with a $300 credit limit, but inadequately disclosed $185 in related fees.
 
CompuCredit offered a credit card (to a different consumer segment) with a credit limit up to $3,250, but didn’t adequately disclose that only half the credit line would be available in the first 90 days.
 
CompuCredit marketed a debit-transfer (delinquent borrower) Visa Card but did not actually issue the card until 25% to 50% of the prior debt had been paid off.
 
Jefferson Capital, CompuCredit’s debt-collection unit, violated the Fair Debt Collection Practices Act by calling delinquent borrowers too frequently and issuing threats against them;
Put aside for a moment the fact that, in two of the four items above, the FDIC seems to be complaining that CompuCredit and the banks aren’t lending to subprime borrowers aggressively enough. That puts the agency at odds, it’s fair to say, with the thinking of the rest of the federal financial regulatory establishment.

A turnabout

But on the actual facts, the “abuses” the FDIC has highlighted aren’t abuses at all, and instead are--by the FDIC’s own prior admission--accepted practices in subprime credit card lending. CompuCredit made this point in a response it made to the FDIC Wednesday morning.  

In particular, the company noted the FDIC's own Consumer Response Center, which was set up at Congress’s behest specifically to monitor lenders’ compliance with consumer protection laws, reviewed the company’s credit card marketing materials repeatedly during the period in question. Throughout that time, the FDIC wrote numerous letters to consumers assuring that CompuCredit’s materials comply with applicable laws and regulations.

It doesn’t stop there. The FDIC hasn’t just approved of CompuCredit’s marketing practices. It’s actually hired CompuCredit for the express purpose of marketing credit cards to customers of a bank it controlled. In particular, in June 2002, the agency, then the receiver for Nextbank, hired CompuCredit to market new credit card accounts and account transfers to qualified Nextbank cardholders.