NEW YORK - A cycle of debt is what New York Attorney General Andrew Cuomo said he is trying to end as he announced a settlement with a credit card company worth nearly $5 million.
The settlement with First Premier Bank resolves allegations that the company targeted consumers with poor credit histories, also known as subprime lending. The South Dakota-based company agreed to pay $4.5 million in refunds and $105,000 in penalties and court costs.
"Subprime lenders like First Premier are luring financially vulnerable borrowers into unaffordable high-cost cards trapping individuals and families in a cycle of mounting debt," Cuomo said. "This agreement ends First Premier's abusive and unfair credit card practices, sets a new standard and provides new protections to borrowers across New York State."
Also, the company has agreed to reform its business practices to comply with Cuomo's demands.
Cuomo's investigation, he says, uncovered that First Premier falsely told consumers that they were pre-approved for a credit limit up to $2,000 at 9.9 percent Annual Percentage Rate, while promising no processing fee for starting an account.
Cuomo says most customers only received a $250-$300 credit line at a 9.9 percent interest rate that could more than double without notice.
Also, hidden fees were charged, as was a $178 processing fee, leaving the consumer with virtually no credit line, Cuomo said.
A copy of the settlement can be found here.