Wilmington, Del. - MBNA Corp. agreed yesterday to settle a class-action lawsuit accusing the world's No. 3 credit-card issuer of misleading consumers in advertisements for low-rate cards.
Lawyers for Andrew B. Spark said they've reached a tentative agreement to resolve allegations that MBNA deceived customers who signed up for the cards and later found out that the introductory low rate didn't apply to new purchases.
Spark, a Florida attorney, sued Wilmington, Del.-based MBNA in 1996, alleging that the bank's promotional materials also didn't tell customers that the lower rate applied only to balance transfers from other cards and cash advances.
Customers paid higher rates on new purchases.
Terms of the settlement are scheduled to be presented to a federal judge in Wilmington at a hearing next week, according to court papers.
MBNA officials weren't immediately available for comment on the agreement, which is part of a recent wave of out-of-court settlements of consumer complaints about credit-card companies' practices.
A federal judge in Los Angeles is expected to decide Monday whether to give final approval to a $45 million settlement of consumer suits against Citigroup Inc.'s Citibank unit.
The suits alleged that customers were forced to pay extra interest and late fees because of the unfair way Citibank officials posted payments to their accounts.
In June, Providian Financial Corp. agreed to pay more than $300 million to resolve claims that it deceived cardholders about rates and fees.
In Spark's case, consumers who responded to ads starting in 1991 that promised a 6.9 percent to 9.9 percent introductory interest rate were misled, according to the suit. The ad said customers could save money with the lower interest rate.
After he got the card, Spark found that the introductory rate didn't apply to new purchases, and that MBNA allocated his monthly payments first to cash advances and transfers, which did carry the lower interest rate.
A smaller portion of his monthly payment was used to pay off new purchases, which carried a 17.9 percent interest rate.
MBNA argued that disclosures included with the card informed customers that the bank reserved the right to allocate payments "in a manner we determine."
But U.S. District Judge Roderick McKelvie, who certified Spark's suit as a class action in 1998, said customers relied on the advertisement when deciding to open up a credit-card account and should be able to band together to press claims against MBNA.