PITTSBURGH - A Pennsylvania company accused of selling junk credit cards says a federal consumer protection agency has no case, as it clearly disclosed the terms to those who wished to use them.
Reliant Holdings responded to the Consumer Financial Protection Bureau's lawsuit on Dec. 27 in Pittsburgh federal court, arguing it never misled customers who purchased $500 credit cards over a 14-year span.
The CFPB says it was unfair to offer the product, which could only be used in Reliant's own online shop or for services like prescription cards or roadside assistance. The CFPB found that only 6% of consumers ever used their cards after discovering their actual terms.
And consumers were charged a fee for enrolling in Reliant's program - also unfair, the CFPB argues.
Since its creation in 2011, the CFPB has been a lightning rod. Critics say it contorts existing law to meet its political ideas while actually damaging consumers in the financial services industry.
Of note is a rule the CFPB seeks to impose without Congressional approval that caps late fees on credit cards. It is subject to a legal challenge in Texas federal court that says it flies in the face of what Congress has stated about late fees - that they deter late payments, account for cardholder conduct and compensate companies for costs they incur when payments are late.
A measure introduced by House Republicans in the Financial Services Committee seeks to repeal the late fees rule. Reliant, in its motion to dismiss, also cites U.S. Sen. Tim Scott, R-S.C., who said "the CFPB has operated in blind pursuit of additional power and has become the hallmark of government overreach - to the point where... the [CFPB] is doing more harm to consumers than good."
Reliant says it is undisputed that it clearly disclosed to consumers that it was not offering a general-purpose credit card but instead a merchandise shopping club with a $500 credit line.
Approval in the form of checking a box indicated customers knew what they were signing up for, Reliant says.
"The conclusory allegations in the CFPB's complaint ignore the reality of how Reliant's online offer was presented to and perceived by reasonable consumers and are not entitled to any favorable inferences," the company says.
That's enough to toss claims for deceptive and abusive practices, Reliant says. As for counts under the Truth in Lending Act, they fail because a membership fee is not a finance charge, it adds.
The CFPB also complains it takes longer for consumers to cancel the credit cards than Reliant would have them believe, something Reliant refutes.
"(T)here is no indication that Congress delegated to the CFPB unfettered discretion to declare any practice - including the amount of time it takes or how to process a refund or cancel a membership - a (Consumer Financial Product Act) violation and thereby impose potentially crippling, and in the case of (Reliant CEO and defendant Robert Kane), financially ruinous penalties for engaging in that otherwise commercially acceptable business practice," Reliant says.
Reliant is represented by Ronald Hicks, Thomas Jones and Benjamin Sitter of Nelson Mullins Riley & Scarborough in Pittsburgh.