The Consumer Financial Protection Bureau (CFPB) sued Horizon Card Services and its CEO Robert Kane for tricking consumers into signing up for its expensive membership credit card. Horizon’s credit card, which could come with almost $300 in annual fees on a card with a $500 credit limit, could only be used to purchase goods from the company’s overpriced online store and nowhere else. The CFPB alleges Horizon and Kane lured consumers into the membership program through deceptive marketing. Horizon charged consumers illegal and excessive fees, and also made it unreasonably difficult for consumers to cancel memberships and obtain refunds. The CFPB is asking the court to end Horizon and Kane’s illegal conduct, and to order them to pay a fine and redress to consumers.
“The CFPB is suing Horizon and its CEO Robert Kane for gouging low-income Americans and making it nearly impossible to cancel for a full refund,” said CFPB Director Rohit Chopra. “The CFPB will continue to closely scrutinize illegal fee harvesting and price gouging, and hold individual financial executives accountable for their role in wrongdoing.”
Reliant Holdings is a nonbank corporation headquartered in Indiana, Pennsylvania doing business as Horizon Card Services. Horizon offered consumers enrollment in a membership that included an unsecured, open-end line of credit. The line of credit typically started at $500 or $750. The company marketed its credit line under numerous brand names, including Boost Platinum Card, Freedom Gold Card, Group One Platinum Card, Horizon Gold Card, Independence Gold Card, Innovation Platinum Card, Merit Platinum Card, Net First Platinum Card Principal Platinum Card, and Focus Gold Card. The company was founded in 2005 by Robert Kane. In addition to being the founder, Kane is the CEO and sole shareholder, and oversees day-to-day business operations.
The Horizon Card Services membership came with periodic fees, and was targeted toward financially vulnerable, subprime consumers. Between 2017 and 2021, Horizon enrolled nearly 900,000 consumers in its membership program who collectively paid more than $51 million in fees. 93% of those consumers never used any Horizon product yet paid over $45 million in fees.
Although marketed as a regular credit card, the line of credit from Horizon could be used only to purchase goods from an online store called Horizon Outlet. The outlet has a limited selection of overpriced or off-brand goods. Between 2017 and 2021, only 6% of consumers ever used their cards at the outlet.
The CFPB alleges that Horizon and Kane violated the Consumer Financial Protection Act and the Truth in Lending Act. Specifically, Horizon and Kane misled and harmed consumers by:
- Luring consumers with lies: Horizon marketed the Horizon Card as a regular credit card to lure consumers into signing up for what was actually a membership program that included a limited line of credit for use only at the Horizon Outlet online store. Horizon relied on advertisements that offered consumers a credit card and failed to mention the product’s considerable limitations. Likely due to the limited value of the product, the company’s data show that 94% of Horizon’s customers never made a purchase from the Horizon Outlet.
- Gouging people with illegal fees: From 2017 to 2021, Horizon required customers to pay up to $24.99 a month, or about $300 a year, in “membership fees” for the credit line. These fees amounted to 60% of the $500 credit limit provided by Horizon for the first year of membership, which far exceeds the 25% cap set by the Truth in Lending Act and its implementing regulation, Regulation Z.
- Trapping people in “memberships”: Consumers who tried to cancel their memberships were subjected to a difficult and time-consuming cancellation process that required consumers to listen to numerous membership offers, rebuttals, and third-party product offers. Horizon also failed to provide full refunds unless customers continued to complain or threatened to contact the Better Business Bureau or their bank. Despite its burdensome cancellation process, Horizon promised some consumers that they could cancel their membership over the phone in less than one-minute for a full refund.
Enforcement Action
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts and practices. The CFPB also has the authority to enforce the Truth in Lending Act and Regulation Z. The CFPB’s lawsuit seeks a stop to alleged unlawful conduct, redress for harmed borrowers, and the imposition of a civil money penalty, which would be paid into the CFPB’s victims relief fund.
