On April 23, the CFPB voluntarily dismissed with prejudice its lawsuit, filed in September 2024, against a Pennsylvania-based credit card company that had been accused of unlawfully marketing a high-cost, limited-use membership program to subprime consumers.
The complaint alleged that the company violated the Consumer Financial Protection Act (CFPA) and the Truth in Lending Act (TILA) and its implementing Regulation Z. The Agency asserted the following violations:
- Misleading marketing of a “general-purpose” credit card. The company allegedly represented that it offered a standard credit card when the product could only be used at the company’s own online store.
- Excessive fees in violation of TILA and Regulation Z. The card carried annual charges amounting to roughly 60% of the card’s credit limit, exceeding the 25% cap permitted during the first year of account opening.
- Limited consumer use and value. Despite charging substantial fees, the program offered minimal utility—only 6% of customers used the card and just 1–3% used any ancillary benefits.
- Deceptive cancellation and refund process. The company claimed cancellations could be completed in under a minute but instead subjected consumers to extended calls and repeated sales pitches before granting partial refunds.
- Unreasonable barriers to exit constituted abusive conduct. The CFPB alleged the company exploited consumers’ inability to easily exit the program or secure refunds, thereby taking unreasonable advantage of financially vulnerable individuals.
Putting It Into Practice: The dismissal is the latest in a series of reversals by the CFPB under its current leadership (previously discussed here and here). While the agency appears to be retreating from certain nonbank UDAAP cases, the statutory obligations under the CFPA and TILA remain unchanged. Companies marketing credit products to subprime consumers should closely review how their offerings are presented, how fees are structured, and how cancellation processes are administered.