July 19, 2012 – Capital One Bank, N.A., yesterday became the subject of the first publicly announced enforcement action by the Consumer Financial Protection Bureau, which has ordered the bank to refund some $140 million to 2 million customers and pay a $25 million penalty for deceptive tactics selling credit card add-on products.
On top of that, the Office of the Comptroller of the Currency has issued its own order for $150 million in restitution (which includes the above-noted $140 million) plus separate restitution of $35 million to other customers harmed by unfair billing practices over a period of nine years, from May 2002 to June 2011, in violation of the Federal Trade Commission Act.
The deceptive product marketing practices were identified by the CFPB through the examination process.
In the announcement, CFPB Director Richard Cordray said the order will return funds to Capital One customers “who were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use.” He added, “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”
Through the supervision process, CFPB’s examiners discovered Capital One’s call-center vendors engaged in deceptive tactics to sell the company’s credit card add-on products. These products included “payment protection” in the event of a disruptive life event (unemployment, temporary disability) and includes debt forgiveness in the event of death or permanent disability. Another was “credit monitoring,” with services such as identity-theft protection, access to “credit education specialists” and, in some cases, daily monitoring and notification.
Consumers with low credit scores or low credit limits were offered these products by Capital One’s call-center vendors when they called to have their new credit cards activated. The CFPB said customers were misled about the product benefits or their own eligibility to access those benefits, weren’t made aware they were optional or didn’t understand there were costs. Still others were enrolled without their consent.
The $140 million will be paid to the estimated 2 million consumers who initially enrolled in a product Aug. 1, 2010, or after, or tried to cancel one on that date or after but were persuaded by a call center representative to keep it. The $25 million penalty goes to the CFPB Civil Penalty Fund.
The bureau, via its blog, also issued two consumer advisories: one explaining the order to Capital One customers, another providing a general warning to consumers about similar deceptive practices.
The CFPB also issued a compliance bulletin to providers regarding deceptive practices involving credit card add-on products.