Low Pay credit card was a ripoff, feds say

The Low Pay CardA group that marketed the Low Pay Card -- a credit card for high-risk borrowers with bad credit -- settled a Federal Trade Commission lawsuit saying customers were charged a range of illegal fees and only allowed to buy overpriced items from a catalog.

The defendants failed to clearly disclose they would debit substantial advance fees and a non-refundable annual fee from consumers' bank accounts , the agency said. In addition, the defendants lied to customers about refunding an activation fee and illegally charged an advance fee for a guaranteed line of credit.

The FTC's original complaint says the defendants took advantage of consumers with credit problems by mailing them offers to build their credit by using a "Pre-Approved," "Platinum-level" credit card with a guaranteed $7,500 credit line and a cash advance benefit.

Although the Low Pay Card was marketed as a "universal" credit card, it was only valid for purchases from the defendant's "Low Pay" catalog – and then for only part of an item's purchase price. After each "Low Pay" purchase, the defendants debited their customer's bank accounts for 30% of the price plus shipping costs for items the FTC says were overpriced.

The card marketers failed, the FTC said, to adequately inform consumers:
  • That a 30% down payment was required.
  • That $397 in fees ($79 processing fee, $120 activation fee, $198 annual fee) would be debited from their bank accounts.
  • That the "cash advance" was really an opportunity to apply for a payday loan from a third-party lender.
  • That card users could not "build" their credit because their payment history was not reported to credit reporting agencies.
The defendants offered to refund the $120 activation fee to consumers who returned the card and catalog within 30 days, but often failed to deliver the catalog within the refund period. In addition, the FTC noted, disclosures in the mailers were confusing, contradictory, out of context and buried in pages of fine print.

The defendants also withheld details until consumers provided a bank account number, then revealed as little information as possible, the FTC said. Disclosures about the terms and conditions, such as how fees are paid, did not correct the false impression left by the defendants.

Under the settlement, Mardan M. Afrasiabi, the Mardan Afrasiabi Living Trust, Low Pay, Inc., LP Capital Holdings, Inc., Ramin Rahimi, and Century Luxury, Inc. are permanently banned from misrepresenting that a credit card can be used to fully finance purchases or provide access to a no-fee, low-cost, or guaranteed cash advance benefit, or that consumers will improve their credit ratings by using a credit card.

They are also forbidden from misrepresenting any fact in connection with the sale of any product or service, and must disclose all fees and costs, and the refund or cancellation policy, before consumers are asked to pay.

The defendants are further barred from violating the Telemarketing Sales Rule, disclosing or benefiting from customer information and failing to dispose of it properly, and trying to collect money on any account established before an order was entered.

The settlement against Afrasiabi, the Mardan Afrasiabi Living Trust, Low Pay, Inc., and LP Capital Holdings imposes a $28.5 million judgment that will be suspended when Afrasiabi and the Mardan Afrasiabi Living Trust surrender funds in a specific investment account and paid either $130,400 or the proceeds of the sale of Afrasiabi's home or turned the home over to a court-appointed receiver for sale.

The settlement against Ramin Rahimi and Century Luxury, Inc., also imposes a $28.5 million judgment that will be suspended against Rahimi when he has paid $460,000.

The full judgments will become due immediately if the defendants are found to have lied about their financial conditions.
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