On September 13, the CFPB filed a complaint against a nonbank corporation and its CEO, alleging that the company engaged in deceptive and abusive acts through misleading advertising and unjustified, exorbitant fees related to its credit card program. The CFPB claims these actions violate both the Consumer Financial Protection Act and the Truth in Lending Act.
The company’s business model involved offering consumers enrollment in a membership that included an unsecured, open-end line of credit. According to the CFPB, the company and its CEO misled consumers into joining their membership program through deceptive marketing. The complaint asserts that consumers were also subjected to unlawful and excessive fees, while facing significant obstacles when attempting to cancel their membership or obtain refunds. The Bureau alleges that the membership cards came with periodic fees, and were targeted toward financially vulnerable, subprime consumers. Between 2017 and 2021, the company enrolled nearly 900,000 consumers in its membership program who collectively paid more than $51 million in fees. Moreover, 93% of those consumers never used any Horizon product yet paid over $45 million in fees.
The CFPB is seeking a court order to halt these illegal practices and impose financial penalties, including restitution for affected consumers.
The complaint outlines several unlawful business practices, including:
- Engaging in Deceptive Marketing Tactics. The company marketed its credit card products as regular credit cards, misleading consumers into signing up for a membership program that only provided credit for purchases at the company’s online store. The company failed to mention the credit product's significant limitations in its advertisements, leading consumers to form false expectations about how the card could be used.
- Imposing Illegal Fees. The company charged customers membership fees of up to $24.99 per month, amounting to around $300 per year, which far exceeded the 25% fee cap set by the Truth in Lending Act for the card’s $500 credit limit.
- Maintaining Improperly Restrictive Membership Terms. Consumers who attempted to cancel their memberships faced a complex and burdensome cancellation process, including being subjected to additional membership offers and third-party product pitches. The company often refused to provide full refunds unless consumers repeatedly complained or threatened to escalate the issue to entities like the Better Business Bureau or their bank.
Putting It Into Practice: Opaque cancellation processes remains a top priority for the Bureau and the FTC as they attack what they call “dark pattern practices.” The FTC, in particular, has been focused on this area which can involve companies looking to manipulate consumer activity through confusing and misleading enrollment and cancellation processes (see our previous blog posts here, here, here, here, here, and here, as well as our webinar titled “Who Turned Out the Lights?: FTC Steps Up ‘Dark Patterns’ Enforcement of Retailers” on this topic). Among the many takeaways from this action is that companies that utilize subscriptions programs, especially those that operate with negative renewal or negative option plans, should ensure that they are providing clear disclosures to consumers wishing to enroll, alter or cancel their services.