In the first public enforcement case by the Consumer Financial Protection Bureau, Capital One Financial Corp. will pay a total of $210 million to settle charges of deceptive marketing of credit card “add-on” products such as payment protection and credit monitoring.
The case was brought by the Consumer Financial Protection Bureau (CFPB) along with the Office of the Comptroller of the Currency (OCC). Capital One agreed to pay $25 million to the CFPB in penalties and $35 million to the OCC in penalties. Restitution will be paid to 2 million Capital One customers in an amount between $140 million and $150 million.
Capital One admitted no wrong doing and seemed to place blame on third-party vendors. In a statement they said they became aware of its vendors’ practices in late 2011, saying “…We are accountable for the actions that vendors take on our behalf.”
Ryan Schneider, president of Capital One’s card business said, “…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.”
As part of the settlement, Capital One agreed not to market the add-on products until the CFPB approves its plan for complying with the settlement.
It was discovered that Capital One’s third-party vendors engaged in deceptive practices to market and sell customers products that included “payment protection” or which some refer to as “credit insurance” that allows customers to cancel up to 12 months of minimum payments if they face unemployment or temporary disability.
Credit insurance can be quite lucrative because it can only be sold by the credit card company which issues the credit card. There is limited to no competition. Customers cannot get a credit card from one company and purchase credit insurance from another.
The vendors also sold credit-monitoring services, identity-theft protection and access to so-called credit education specialists. Customers were led to believe the services had to be purchased in order to activate their credit cards. In some instances customers were led to believe that debt protection or credit monitoring was free. Some customers were even given the impression that the purchase would improve their credit scores.
Richard Cordray of the CFPB said “…the settlement will put $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.”
For many years Capital One’s credit card customers have been unwittingly subjected to these deceptive practices which are against the law. The settlement is just the cost of doing business for Capital One as they have been fined for the same types of practices previously.
The British government fined Capital One in 2007 for a similar deceptive marketing practice. Capital One paid a penalty “after the company did not give adequate information to customers who bought payment protection insurance (PPI) that they thought would pay off their credit card bills in case they became ill or lost their jobs.”
Cordray said “We know these deceptive marketing tactics for credit card add-on products are not unique to a single institution,” Cordray said. “We expect announcements about other institutions as our ongoing work continues to unfold.”
July 21, 2012, marked the Consumer Financial Protection Bureaus’ first anniversary. Consumers definitely have something to celebrate. The CFPB plans on pursuing more cases against credit-card companies. A probe into Discover Financial Services’ marketing of fee-based products and debt protection services could lead to another settlement for customers.