SACRAMENTO (CN) - Citigroup, Discovery Bank and First Premier Bank target people with low credit ratings by charging fraudulent monthly fees for credit protection plans, a California district attorney claims in federal lawsuits.
Trinity County District Attorney Eric Heryford filed separate complaints against the banks and their credit card branches on Friday. On behalf of the people of California, Heryford accuses them of unfair competition and fraudulent and unfair business practices.
The products at issue include "Credit Protect" and "PaymentAid" by Citigroup, "Identity Theft Protection" and "Wallet Protection" by Discover, and "Premier Payment Protection" by First Premier.
The banks "most aggressively market these products to vulnerable California consumers who fall into the subprime credit category, who have low credit limits because of impaired credit ratings, or who are looking to establish or re-establish their credit," Heryford says in the complaints.
The plans, each of which have a monthly fee separate from interest and other fees, are optional products that are not required to maintain a credit card account.
Each fee is charged directly to the consumer's credit card account each month without a separate bill or invoice.
Although the companies represent the plans as simple, they are actually "a dense maze of limitations, exclusions, and restrictions, making it impossible for consumers to knowingly determine what these products cover," Heryford says.
He claims the banks use "highly deceptive and misleading telemarketing calls" to enroll cardholders, thereby "charging some California consumers without their meaningful consent or understanding that their credit card will be charged for these plans."
The banks are in an enviable position to sign up unsuspecting customers because they already have the customers' credit card number on file. Customer service representatives, many of whom are paid commissions, may characterize a call as a courtesy to thank cardholders when they are actually calling to sell the ancillary plans, the district attorney says.
The sales reps then speed through or alter the text of the information they are required to give to cardholders and conclude by saying "OK?" or asking if the person heard them or understood, according to the complaints.
"Although the cardholder believes they have just listened to a courtesy call, defendants treat any affirmative response elicited by the telemarketer as the cardholder's agreement to enroll in ancillary plans. So while the cardholder may have said 'OK' or 'yes' at the conclusion of the call, no reasonable person listening to the recordings of these calls would conclude that the cardholder was giving his or her knowing, meaningful assent to be charged a monthly fee for enrollment in one or more of the plans," Heryford says.
Many cardholders have no idea they have enrolled in the plans and do not notice or appreciate the meaning of the line-item charge on their credit card bills, since the charge is listed as one of the cardholder's other monthly purchases, the complaints state.
When cardholders realize they are being charged for something they don't want and didn't ask for, the banks make it "exceedingly difficult for them to get relief, such that many California consumers give up hope of ever getting their money back," Heryford says.
Heryford, who did not immediately respond to a request for comment Monday, seeks civil penalties of up to $2,500 per violation, disgorgement, restitution and additional penalties of $2,500 for each elderly victim.
A representative from Discover said the company does not comment on pending lawsuits.
The other companies did not immediately respond to requests for comment on Monday.
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