Did disgraced former New York State Attorney General Eliot Spitzer got a job with the Federal Trade Commission?
His ham-fisted style in dealing with businesses in the crosshairs was certainly on full display yesterday, when the FTC slammed CompuCredit (Nasdaq: CCRT) with charges of unfair and deceptive marketing of credit cards.
This Motley Fool Stock Advisor recommendation sells credit cards to individuals at the low end of the FICO credit-score range. These people have poor, minimal, or no credit histories, perhaps because of bankruptcies or failure to pay previous debts. The FTC and FDIC allege that the specialty finance firm was deceptive in disclosing fees and charges associated with its branded credit cards, and practiced illegal collection activities. Moreover, it also charged two banks that issued cards marketed by CompuCredit in an attempt to make the company a pariah.
There was little subtlety in the regulators' actions: Do business with businesses we don't like, and you'll pay the penalty, too.
The move against CompuCredit resembles assaults against other providers of services to the so-called subprime market. Payday lenders like Advance America (NYSE: AEA), EZCORP (Nasdaq: EZPW), and First Cash Financial (Nasdaq: FCFS) are being bludgeoned by regulators and social activists for providing financial services to less-affluent customers, and those without access to traditional banking institutions.
Say what you will about Angelo Mozilo prior to Countrywide Financial's takeover by Bank of America (NYSE: BAC). But by providing mortgages to a wide net of individuals, his company helped make homeownership a reality for millions of people with no other option. Not everyone who got mortgages through "liar's loans" -- nor even most of them -- turned into deadbeats.
True, there have been excesses in subprime lending, and many who got mortgages probably weren't qualified for them. But just because some people rely too heavily on cash advances to make it to the next paycheck, and others run up their credit card bills without thinking, doesn't mean the businesses who serve them ought to be hunted down like Frankenstein's monster by torch-carrying throngs.
When the economy was thriving, attempts to limit extending credit to certain groups immediately drew charges of bias. Now that the good times are over, the government doesn't want to accept responsibility for its own hand in the easy-money policies that once ran rampant.
The charges against CompuCredit seem especially spurious. The complaint goes into microscopic detail about how the mailers were folded and inserted into the envelope, and includes both black-and-white and color samples of the materials. Yet CompuCredit's mailers, looking like they came out of Marketing 101, appear no different from promotions you might receive from Visa (NYSE: V) or MasterCard (NYSE: MA).
As for disclosure, the samples the FTC included clearly show that the annual fees and activation charges associated with accepting the credit cards were prominently displayed in a so-called "Schumer box," which is a summary of the terms and costs associated with a credit card. As CompuCredit notes in its defense, the FDIC has repeatedly said that its fees and terms disclosure is well within consumer protection laws.
There were undoubtedly excesses here, too. The allegations that a subsidiary of CompuCredit would call borrowers up to 20 times a day to collect on past-due amounts are troubling -- if true. The FTC, however, has failed to provide any proof of these practices despite numerous requests. The subsidiary insists it has been fully compliant with the law.
This assault on providers of subprime financial services smacks of elitism. While pretending to seek a level playing field, these do-gooders in and out of government are actually working hard to limit poorer customers' access to services you and I take for granted. In addition, these are high-credit-risk individuals, many of whom have shown a propensity in the past for ignoring their obligations. The companies serving them provide a way for customers to establish or renew their credit, but that rightly comes at a cost.
Rather than improve lower-income citizens' access to financial services, subprime lenders and payday loan providers are now closing shop and turning people away. By making CompuCredit an industry pariah, regulators may only further ensure that people at the low end of the FICO range have an even smaller chance of regaining and repairing their credit.
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