Cordray
WASHINGTON (Legal Newsline) - The Consumer Financial Protection Bureau announced its first enforcement action - on its first birthday - by ordering Capital One Bank to refund approximately $140 million to two million customers and pay a $25 million fine.
The CFPB ruling is the result of its review of Capital One's marketing practices. It alleged Capital One used deceptive marketing tactics by vendors to pressure or mislead consumers into buying "add-on products" like payment protection and credit monitoring when they activated their credit cards.
"Today's action puts $140 million back in the pockets of two million 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," said CFPB Director Richard Cordray, formerly the attorney general of Ohio.
"We are putting companies on notice that these deceptive practices are against the law and will not be tolerated."
CFPB's examiners said they discovered Capital One's call-center vendors engaged in deceptive tactics to sell the company's credit card add-on products. Allegedly, consumers with poor credit scores were told that their credit scores would improve and the credit limit on their Capital One credit card would increase by buying things like payment protection.
This allows consumers to request that the bank cancel up to 12 months of minimum payments - roughly one percent of their credit card balance - if they are unemployment or have a temporary disability. "Credit monitoring" was another service deceptively sold, Cordray said.
Consumers were not always told that buying the products was optional, it is alleged. In other cases, consumers were wrongly told they were required to purchase the product in order to receive full information about it, but that they could cancel the product if they were not satisfied, according to the CFPB.
CFPB auditors also alleged that occasionally consumers were enrolled without their consent. Some call center vendors processed the add-on product purchases without telling the customer, the CFPB alleged. Consumers were then allegedly automatically billed for the product and often had trouble cancelling the product when they called to do so.
Capital One has agreed to end the deceptive marketing. It has ceased marketing of these products pending the submission of a compliance plan, which will prevent future illegal acts. The plan must be approved by the CFPB.
The company will pay approximately $140 million to all of the estimated two million consumers who either initially enrolled in a product on or after Aug. 1, 2010, or who tried to cancel a product on or after Aug. 1, 2010, but were persuaded to keep the product after speaking with a call center representative. Customers will also receive a refund of finance charges, fees and interest.
There will be an independent compliance audit. An independent auditor will determine if Capital One has complied with the CFPB's Consent Order.
Capital One is separately being ordered by the Office of the Comptroller of the Currency to pay a $35 million civil penalty and restitution of approximately $150 million, which includes the CFPB $140 million refund. These fines and payments are for the same violations.
The CFPB is issuing a compliance bulletin that alerts all institutions, "CFPB will not tolerate deceptive marketing practices, and institutions will be held responsible for the actions of their third-party vendors. Companies engaging in deceptive practices will be expected to refund fees paid by consumers and, particularly where practices are widespread, pay an appropriate penalty."