by Joseph Kenny | 11/17/09

The Federal Trade Commission (TFC) decided to take action against companies marketing their products as regular credit cards when in fact they are not. The companies were sending out marketing mailers making claims that consumers could begin repairing their credit by using the pre-approved credit cards the company issued.

The companies even went so far as to use language that regular credit cards use including terms like “Pre-Approved” and “Platinum-Level”. There were other terms included in the mailers too such as “Guaranteed $7,500 Credit Line”. The problem is the cards are not true credit cards because they can only be used to buy products out of a company catalogue. To make matters worse, the card could not be use to pay for the item in full.

This is how the purchase worked. The consumer gets a card with an authorized spending limit. When a purchase was made, the buyer’s bank account was debited for 30 percent of the total purchase price and the added-on shipping costs. Consumers claimed the products were also greatly overpriced. The card came with a $79 processing fee and a $120 activation fee and a $198 annual fee.

The card also claimed to have a cash advance feature, but it turns out the cash advance is really a payday loan. The use of the card did not repair credit history either because the company was not reporting the payment history to the major credit agencies.

If that doesn’t seem deceptive enough, there is more. The company offered to refund the full activation fee if the consumer returned the card and the catalogue within a 30 day period. There was a problem with this too. It seems that the company would mail the catalogue out too late for the consumer to receive it within the 30 days making them ineligible for the refund.

One thing this card did have in common with regular credit cards is that the offer came with pages of fine print that is almost indecipherable. The company would also fail to reveal all the account details until after the consumer had supplied their bank account number.

The FTC has filed a complaint indicating it believes the company has violated the FTC Act and the Telemarketing Sales Rule. The violations are due to the company deceptively marketing the card by presenting it in a way to make consumers believe it is a real credit card. There are multiple deceptions listed.

• Card marketed as a real credit card

• Making people believe the card had a cash advance feature

• Making people believe using the card could help their credit ratings

• Failing to tell people their bank accounts would be debited for fees and the 30 percent of the product’s price

• Failing to make it possible to get a refund upon request

• Charging an advance fee for the extension of card credit

The companies named in the FTC complaint are Low Pay, Inc; LP Capital Holdings, Inc.; Century Luxury, Inc.; The Mardan Afrasiabi Living Trust; Mardan M. Afrasiabi; and Ramin Rahimi. The companies have agreed to temporarily stop the deceptive practices until the court case is settled. The FTC wants to permanently stop the practices.

This is another reminder that consumers need to read the fine print in card offers before agreeing to any terms. In addition, if terms seem to be too good to be true…they just might be deceptive.