(CFPB news release) Wednesday, the Consumer Financial Protection Bureau (CFPB) announced its first public enforcement action with an order requiring Capital One Bank to refund approximately $140 million to two million customers and pay an additional $25 million penalty.
According to the CFPB news release:
This action results from a CFPB examination that identified deceptive marketing tactics used by Capital One’s vendors to pressure or mislead consumers into paying for “add-on products” such as 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. “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,” which 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 encounter certain life events like unemployment and temporary disability. It also provides debt forgiveness in the event of death or permanent disability. Another product 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. As part of the high-pressure tactics Capital One representatives used to sell these add-on products, consumers were:
Misled about the benefits of the products: Consumers were sometimes led to believe that the product would improve their credit scores and help them increase the credit limit on their Capital One credit card.
Deceived about the nature of the products: Consumers were not always told that buying the products was optional. 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. Many of these consumers later had difficulty canceling when they called to do so.
Misled about eligibility: Although most of the payment protection benefits kicked in when consumers became disabled or lost a job, some call center representatives marketed and sold the product to ineligible unemployed and disabled consumers. Despite paying the full fees, they could not get all the benefits of payment protection; some later filed claims that were denied because their “loss” (e.g. loss of job or onset of disability) occurred prior to enrollment.
Misinformed about cost of the products: Consumers were sometimes led to believe that they would be enrolling in a free product rather than making a purchase.
Enrolled without their consent: Some call center vendors processed the add-on product purchases without the consumer’s consent. Consumers were then automatically billed for the product and often had trouble cancelling the product when they called to do so.
Capital One also issued a news release. It reads:
Capital One Financial Corporation today announced that its subsidiary bank, Capital One Bank (USA), N.A., has reached agreements with the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau to resolve previously disclosed issues related to Capital One's oversight of vendor sales practices relating to Payment Protection and Credit Monitoring products.
As described in both agreements, between August 2010 and January 2012, Capital One's third party vendors did not always adhere to company sales scripts and sales policies for Payment Protection and Credit Monitoring products, and the bank did not adequately monitor their activities. The agreement with the OCC also addresses certain billing practices relating to Credit Monitoring products administered by third party vendors.
"We are accountable for the actions that vendors take on our behalf," said Ryan Schneider, President of Capital One's Card business. "These marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold. We apologize to those customers who were impacted and we are committed to making it right."
When Capital One first learned of breakdowns in late 2011, the company immediately stopped phone sales of the products and began efforts to identify impacted customers in order to provide full refunds. Consistent with the agreements with the regulators, Capital One will set aside $150 million to provide refunds, almost all of which will go to customers impacted by the vendor sales practices between 2010 and 2012. Under the OCC agreement, approximately $7 million of the $150 million will go to customers impacted by the billing practices related to Credit Monitoring products administered by third party vendors between 2002 and 2011.
Customers will begin receiving their refunds later this year. In addition, Capital One will pay $25 million in Civil Money Penalties to the CFPB and $35 million in Civil Money Penalties to the OCC. Capital One is strengthening its internal quality control processes and its monitoring of its vendors. Capital One has fully cooperated with both the OCC and the CFPB in addressing these issues.