Daily Archives: 04/29/2004

OCC Warns Banks on Certain Sub-Prime Cards

The OCC yesterday issued a letter to all national banks cautioning them about certain secured credit card programs issued to sub-prime consumers that have little, if any, available credit line upon issuance. In addition to presenting increased risks of default, customer confusion, and other adverse consequences, the OCC says this structure may constitute an unfair practice under the applicable standards of the Federal Trade Commission Act. Accordingly, the OCC has determined that this type of secured credit card product is not appropriate for national banks, and should not be offered by them. The OCC zeroed in on card offers whereby the security deposit or very high fees are charged to the card eating up nearly the entire credit line. The OCC says it found that solicitations and other marketing materials used for these credit card programs have not adequately informed consumers of the costs and other terms, risks, and limitations of the product being offered. In these marketing campaigns, the fact that the consumer need not furnish any funds to open the account may be prominently featured as a benefit of the issuer’s secured credit card program. However, the adverse effects of this structure for the borrower are omitted or obscured. The OCC noted that apart from particular disclosure issues, this type of product carries a potential for consumer abuse that raises significant compliance and reputation risks.