By Jeff Bater
A Missouri community bank is settling with the Federal Reserve for $5 million over allegations of deceptive marketing of balance transfer credit cards.
A Fed consent order announced Oct. 26—the same day the regulator approved the bank’s acquisition by another Missouri lender—requires Mid America Bank and Trust Company, of Dixon, Mo., to pay restitution to nearly 21,000 affected cardholders. The bank was accused of violating the Federal Trade Commission Act.
Mid America offered the cards through third parties as a way to give consumers the potential to settle debt while obtaining an extension of new credit. Under the Fed order, the bank will be required to refund fees paid by cardholders in connection with the deceptive practices.
The order for restitution involves three separate credit card portfolios acquired by Mid America.
The bank marketed cards from one of those portfolios from mid-2009 through 2011. It allegedly failed to disclose that finance charges and fees would reduce the amount of new credit available to a consumer after making a payment, according to the Fed.
Because of the lack of disclosure, consumers could have reasonably believed that by continuing to make timely minimum monthly payments on a card, they would receive credit equal to the amount they paid, the Fed said, adding, “In fact, they did not due to the assessment of finance charges and fees.”
The bank did not respond to a request for comment.
The settlement was announced on the same day the Fed said it approved a proposed acquisition of Mid America by another Missouri lender, Reliable Community Bancshares, of Perryville.
Reliable, with consolidated assets of approximately $1.4 billion, controls Bank of Missouri. Mid America has $159 million in assets.
The order approving the acquisition referred to Mid America’s alleged FTC violations involving balance transfer credit cards.
Bank examiners noted the alleged violations contributed to a rating of “needs to improve” in the latest evaluation of Mid America under the Community Reinvestment Act, according to the Fed. The 1977 law requires banks to help meet the credit needs of the communities they are chartered to serve.
The Fed said its order approving the acquisition is conditioned on Reliable’s compliance with a commitment to cause Bank of Missouri, as successor to Mid America Bank, to comply with the obligations of the settlement.
To contact the reporter on this story: Jeff Bater in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
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