CompuCredit and Collection Agency Target of $100 million FTC-FDIC Action: Report

Credit card marketer CompuCredit (NYSE: CCRT) will be on the wrong end of a federal probe today as regulators seek as much as $100 million in fines and restitution against the company for improper credit card marketing and debt collection practices, according to The Wall Street Journal today. A collection agency is expected to be named in the action as well. CompuCredit shares were down about 9 percent in Tuesday morning trading to $7.95.

The Federal Trade Commission (FTC) issued a statement late Monday announcing a joint press conference will be held at 1:30 pm Eastern time Tuesday with the Federal Deposit Insurance Corporation (FDIC). At the press conference, the regulators will “announce a law enforcement action charging a credit card marketer and a debt collection company with using deceptive marketing practices and abusive debt collection tactics affecting consumers in the subprime market.”

The Journal names the “credit card marketer” as CompuCredit, although there is no indication of which collection agency will be named in the action. The FTC’s announcement also noted that the FDIC would be announcing separate charges against individual banks that issued CompuCredit’s subprime cards.

Since CompuCredit is not a bank, it cannot technically issue Visa and MasterCard-branded credit cards. So it partners with smaller banks who issue the cards with CompuCredit doing the heavy lifting on marketing and servicing.

The Journal did not indicate how it arrived at the reported $100 million figure for fines and restitution. But in 2006, CompuCredit and partner bank Columbus Bank & Trust were forced to pay $11 million in restitution to consumers as part of a settlement with New York’s Attorney General concerning similar charges.

CompuCredit refused to talk to the Journal for the article, but there is strong evidence indicating that the Atlanta-based company is the one referenced in the FTC’s press release.

In May, in its first quarter results filing with the Securities and Exchange Commission, CompuCredit said that "settlement discussions with the FDIC and FTC are ongoing," and conceded that the FTC had launched an investigation of the firm in December 2006. CompuCredit reported a loss of $105 million in the first quarter (“CompuCredit Loses $105 Million in Quarter,” May 9).