FTC Charges 'Credit Card' Companies with Deceptive Marketing

The Federal Trade Commission has filed a complaint in federal court alleging that a catalog credit card operation deceptively marketed its card, failed to honor its refund policy, and charged up-front fees for a guaranteed line of credit. The defendants, who charged consumers hundreds of dollars in fees for the card, voluntarily agreed to an order that prohibits the practices alleged in the complaint pending trial. The FTC seeks to permanently stop the unlawful practices and make the defendants provide refunds to consumers.

According to the FTC’s complaint, in mailers sent to consumers with credit problems, the defendants stated that consumers could “build” their credit by using a “Pre-Approved” “Platinum-level” credit card with a “GUARANTEED” $7,500 credit line and a cash advance benefit. Although the card appeared to be a regular credit card, it could be used only to purchase products from the defendants’ catalog, and only for part of the product purchase price. The defendants debited from consumers’ bank accounts 30 percent of each purchase plus shipping costs for products sold at greatly inflated prices. Consumers weren’t adequately informed that a 30 percent down payment would be required, that $397 in fees ($79 processing fee, $120 activation fee, $198 annual fee) also would be debited from their bank accounts, that the “cash advance” was really an opportunity to apply for a payday loan from a third-party lender, and that card users could not “build” their credit because their payment history was not reported to credit reporting agencies.

The defendants offered to refund the $120 fee to consumers who returned the card and catalog within 30 days, but the defendants often failed to deliver the catalog within the refund period, according to the complaint. Disclosures in the mailers were confusing, contradictory, out of context, and buried in pages of fine print. The defendants allegedly withheld details until consumers provided their bank account number, and then revealed as little information as possible. Disclosures about the terms and conditions, such as how fees are paid, did not correct the false impression left by the defendants, the FTC alleges.

The defendants are charged with violating the FTC Act and the FTC’s Telemarketing Sales Rule (TSR) by falsely representing that the card could be used to fully finance purchases; that it would provide access to a no-fee, low cost, or guaranteed cash advance benefit; and that consumers could improve their credit ratings by using the card. They also failed to disclose that they would debit from consumers’ bank accounts the advance fees, a non-refundable annual fee, and 30 percent of a product’s price plus shipping costs. In addition, the defendants falsely claimed that they would refund the $120 activation fee to consumers who returned the card and catalog in timely fashion. The defendants also allegedly violated the TSR by charging an advance fee for a guaranteed extension of credit.

The defendants are Low Pay, Inc., doing business as LPC Inc., lowpaycard.com, and mylpcard.com; LP Capital Holdings, Inc.; Century Luxury, Inc.; the Mardan Afrasiabi Living Trust; Mardan M. Afrasiabi; and Ramin Rahimi. The Commission vote to authorize staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Central District of Oregon.

The FTC acknowledges the Oregon Department of Justice and Oregon Attorney General John Kroger for their substantial assistance with the FTC’s investigation.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,700 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

Frank Dorman,
Office of Public Affairs

Eleanor Durham,
FTC’s Northwest Region

(FTC File No. 0923019)
(Low Pay)