Court Affirms Action Against Credit Card Issuer

ALBANY---An appellate court ruling has upheld a lower court decision halting a major credit card issuer's predatory and abusive lending and debt collection practices.

The Appellate Division, Third Department of State Supreme Court in Albany upheld a 2004 decision issued by the late Justice Joseph R. Cannizzaro against Cross Country Bank, one of the nation's largest sub-prime credit card issuers, and its debt collection affiliate, Applied Card Systems.

In the lower court decision, Justice Cannizzaro ruled that Cross Country Bank and Applied Card Systems, both of Wilmington, Delaware, engaged in fraud, deception, false advertising and abusive debt collection practices.

In issuing his decision, Justice Cannizzaro ordered Cross Country Bank and Applied Card Systems to halt all of the illegal practices cited in the Attorney General's lawsuit and scheduled further proceedings to determine the amount of restitution and penalties each must pay. After the decision was entered, the AG's office filed a motion seeking monetary relief of approximately $40 million. A ruling on that motion is expected shortly.

In Thursday's decision, the appellate court found that Justice Cannizzaro correctly determined that Cross Country Bank had engaged in all of the fraudulent and deceptive practices that Spitzer's office had alleged.

The Third Department also found that AG Eliot Spitzer's claims were not preempted by the federal Truth-In-Lending Law.

The Attorney General filed this lawsuit in 2003, alleging that Cross Country Bank targeted consumers with poor credit records with deceptive credit card solicitations, that offered credit lines of up to $2,500. The vast majority of consumers, however, actually received approximately only $400 in credit, much of which was immediately applied to fees imposed by the bank, such as annual, application and monthly maintenance fees, which significantly reduced the already minimal amount of credit available to the consumers.

The effect of the limited credit lines and compounding fees and finance charges was to trap these unwary consumers in a vicious cycle of pyramiding debt from which they could not escape.

Specifically, Spitzer alleged that Cross Country Bank:

Misrepresented the amount of credit available to cardholders;

Fraudulently induced consumers into purchasing credit insurance that was of little or no benefit to cardholders;

Fraudulently induced consumers to unwittingly enroll in fee-based membership programs; and

Misrepresented the features of its secured credit cards.

Spitzer's lawsuit claimed that, as a result of these acts, many cardholders unknowingly exceeded their credit limit, thus incurring additional $30 overlimit fees. In addition, consumers who were unable to bring their balance below the credit limit by the payment due date incurred $30 late fees. As part of his lawsuit, the Attorney General also alleged that, after Cross Country Bank drove the cardholders into delinquency, its affiliate, Applied Credit Services employed a variety of abusive and illegal collection techniques designed to harass cardholders into making a payment. These unlawful tactics included misrepresenting the caller's identity; making repeated, frequent and disruptive telephone calls; calling cardholders at their place of employment; using rude insulting and/or obscene language; and making false and improper threats. In addition, the Attorney General alleged that Applied Card Systems debited payments from cardholders' accounts without authorization and misrepresented payoff amounts.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.