Mid America Bank ordered to refund $5 million

The Federal Reserve Board has issued a Consent Order against Mid America Bank and Trust Company ("Mid America"), Dixon, Missouri, for deceptive practices in violation of section 5 of the Federal Trade Commission Act related to balance transfer credit cards issued to consumers by Mid America through third parties. The Consent Order requires Mid America to pay approximately $5 million in restitution to nearly 21,000 consumers. Mid America issued balance transfer credit cards to consumers through third paries known as independent service organizations (ISOs). Mid America contracted with the ISOs to allow the ISOs to issue credit cards in the name of the bank to consumers with charged-off obligations that the ISOs had purchased from the creditors. When such a card was issued, the account was held by the bank.

• Consumers who obtained an "Affirm Card" from the bank were not told that the assessment of finance charges and fees would limit the amount of new credit available to a consumer, even if the consumer made payments on the account. Therefore, consumers could have reasonably believed that by continuing to make timely minimum monthly payments on their Affirm Card they would receive credit equal to the amount they paid, when, in fact, they did not due to the assessment of finance charges and fees.
• Consumers who obtained a "Pearl Card" from the bank were led to believe that the account would be a way to build positive payment records because their monthly payments would be reported to consumer reporting agencies. Due to an FDIC order barring the original issuer of the Pearl Cards from reporting any defaults to credit reporting agencies, Mid America decided it would not report any payment histories on the accounts, but failed to inform the Pearl Card cardholders it would not do the reporting. About 12,000 consumers were affected.
• Mid America acquired a balance transfer credit card program, the Emblem Mastercard portfolio, and marketed new Emblem Cards to consumer who had charged-off or past-due debt, but failed to disclose to the consumers that participating in the Emblem Card program could restart the statute of limitations for out-of-statute debt.

Under the terms of the Consent Order, Mid America will be required to refund fees paid by cardholders in connection with the deceptive marketing practices and, for certain consumers, refund the total qualifying payments and waive the remaining transferred balance. Mid America also will be required to take other corrective measures to remediate consumers' injuries, improve consumer compliance programs, and avoid violations of section 5 of the Federal Trade Commission Act in the future.