Debit Card Firm Settles FTC Payday Loan Complaint

A debit card company that charged customers a fee for a debit card they had unknowingly ordered when applying for a payday loan online has agreed to settle a complaint brought by the U.S. Federal Trade Commission, the agency said.

Defendants settling the FTC complaint Wednesday were California-based VirtualWorks, formerly known as Private Date Finder and also doing business as EverPrivate Card and Secret Cash Card; Jerome Klein, the company's president and CEO; and Joshua Finer, the company's owner, the FTC said.

VirtualWorks sold debit cards through payday loan sites operated by Swish Marketing, according to the FTC complaint. People who applied for payday loans were charged up to US$54.95 for a prepaid debit card with a zero balance, the FTC said.

On several payday loan sites operated by Swish Marketing, customers who clicked the submit button for a loan were taken to another page offering four products unrelated to the loan, each with small "yes" and "no" buttons. "No" was pre-clicked for three of the products, but "yes" was pre-clicked for a debit card, with fine-print disclosures asserting the consumer's consent for their bank account to be debited, the FTC said.

Consumers who failed to change the debit card offer to "no" and clicked the prominent button labeled "Finish matching me with a payday loan provider!" were charged the fee for the debit card. Other Web sites touted the debit card as a "bonus" and disclosed the enrollment fee only in the fine print below the submit button, the FTC alleged.

The debit card company and the payday loan marketer worked together to design the offer, the FTC said. The card company paid the payday loan firm up to $15 for each transaction. Thousands of consumers were charged the enrollment fee of up to $54.95, and many also were hit with fees and penalties from their banks because their accounts ended up overdrawn.

Consumers complained to the companies, the Better Business Bureau, law enforcement agencies, banks and payday lenders, the FTC said.

The settlement requires Finer to pay $52,000 and stop deceptive marketing techniques, the FTC said. The settlement order, from the U.S. District Court for the Northern District of California, imposes a $5.5 million judgment against the defendants with all but $52,000 suspended based on Finer's ability to pay. If the defendants are found to have misrepresented their financial condition the full judgment will be due, the FTC said.

The defendants were charged with falsely representing the terms of the payday loan agreement.

The settlement order permanently bars the debit card company and its executives from misrepresenting the cost of any product or service or the method for charging consumers. They also may not misrepresent that a product or service is free or a "bonus" without disclosing all material terms and conditions.The order further bars the defendants from charging consumers without first disclosing the specific billing information to be used, the amount to be paid and the method for assessing the payment.

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