WASHINGTON The Office of the Comptroller of
the Currency (OCC) announced today that it has issued an Order against the
First National Bank of Marin requiring the Las Vegas-based bank to pay
restitution to credit card customers harmed by unfair practices. Under the Order, the bank is also prohibited
from charging customer security deposits to credit cards issued by the bank,
and is prohibited from charging interest on security deposits that were
previously charged to credit cards.
The Order requires the bank to set aside at least $10
million to fund restitution payments to customers who, as part of a credit card
program operated by the bank, were charged interest on a $200 security
deposit that the bank encouraged customers to charge to the card. The final
amount of restitution paid out will depend upon the number of customers found
to have been affected by this practice, and will be subject to review by the
OCC.
The bank offered secured credit cards to individuals with
impaired credit histories, and encouraged them to charge the $200 security
deposit to the card. After adding various fees that were also charged to the
card, customers who received the banks minimum credit line of $260 had only
$2.50 in credit available for their use.
In its solicitations, the bank promoted the ability to charge the
security deposit to the card as a benefit to customers.
However, the OCC found that by charging the security deposit
to the customers card, the bank artificially inflated credit balances and
required customers to pay improper interest charges on the security
deposit. Interest charged on the amount
loaned for the security deposit was itself a questionable practice because it
was simply a bookkeeping entry that reduced the amount of available
credit. In signing the Order, the bank
agreed to eliminate this charge-the-deposit feature and to pay restitution as
provided in the order.
The solicitations also suggested that the banks credit card
program allowed customers to rehabilitate poor credit, even though nearly half
of the individuals who enrolled in this program defaulted, resulting in an
adverse impact upon their credit rating. The OCC found that the bank should
have known that its program would result in a high number of defaults.
As a result of the OCCs findings regarding the banks
charge the deposit feature, the OCC
alleged that the banks lending practices were unfair and deceptive in
violation of the Federal Trade Commission Act.
In consenting to the Order, the bank did not either admit or deny that
its practices violated the FTC Act. The
Order also requires the bank to take certain steps to maintain adequate capital
and to restrict its use of federally insured deposits.