Capital One’s wallet is “a bit lighter” this morning, Elizabeth Lazarowitz tells us in the New York Daily News, as it has agreed to pay $210 million to settle charges brought by the Consumer Financial Protection Bureau that its marketing of “add-on” products for its credit card has been deceptive.
Customers have been “pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use,” according to CFPB director Richard Cordray. This is the first public enforcement action taken by the agency, which has been operating for a year following a volatile and politically charged debate over the need for its existence at all.
Capital One will refund $150 million to 2.5 million consumers and pay $60 million in fines. The CFPB’s civil penalty fund will itself get $25 million of the proceeds –- an added incentive (as if it needed one) to pursue similar charges against other credit-card companies, which it says it will do.
"This settlement is not unique and I expect there to be more activity," the CFPB’s Cordray said at a press conference yesterday.
Discover Financial Services, cited by Matthias Rieker, Andrew R. Johnson and Alan Zibel in the Wall Street Journal, is one company under scrutiny. It is facing action by both the Federal Deposit Insurance Corp. and the CFPB over shady marketing practices that it says in a regulatory filing could cost it up to $110 million. A federal judge in Illinois approved a settlement Discover reached with the plaintiffs in eight class-action lawsuits over its sale of various add-on products in May.
Capital One’s phone-sales operators "told customers that services like payment protection and credit monitoring were free or mandatory or offered more benefits than they did,” according to an AP report on Business Insider that says the hard sell “targeted people with poor credit.”
Capital One did not admit to, or deny, the charges.
“While it said the wrongdoing had occurred at outside call centers that ‘did not always adhere to company sales scripts,’ the bank’s president for credit cards, Ryan M. Schneider, acknowledged that the company was ‘accountable for the actions that vendors take on our behalf,’” write Ben Protess and Jessica Silver-Greenberg in the New York Times.
“We apologize to those customers who were impacted and we are committed to making it right,” Schneider says in a statement. “These marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold.”
Credit card companies have been “more aggressively marketing” payment protection and other ancillary services “as revenue from traditional fee sources for credit cards, like interest and late fees, has been squeezed” during the recession, John Ulzheimer, president of consumer education for SmartCredit.com, tells the WSJ.
"Those have absolutely become more popular post 2007 … partially because there's great margin in those services," says Ulzheimer. He adds that “most banks offer white-labeled services provided by other vendors.”
Ed Mierzwinski, consumer program director of advocacy group U.S. PIRG, indicates that the announcement is a signal that CFPB is not to be trifled with. “This is a big event for a young agency,” he tells Reuters’ Beth Pinsker Gladstone. “They brought their first action against one of the biggest, most politically active firms, and that will send a clear message that violations of the law will not be tolerated.”
Capital One will have to submit a plan to the CFPB if it wants to resume marketing add-on credit card products but Mierzwinski thinks that unlikely and expects other issuers to themselves drop the offerings. "It would be stupid to continue to market this kind of product," he says.
Mortgage lending, student loans and credit-reporting companies are among the other areas the CFPB is examining and USA Today’s “Your Money” columnist Susan Torpor has an piece on its efforts today based on an interview with Cordray before a town hall meeting in Detroit this week.
"We have a lot of concerns about the student loan market, because we see aspects of that market that do resemble some of the bad features of the mortgage market from, say, five years ago," Cordray tells Torpor. "There are loans being made without real attention to the ability to repay."
The CFPB has set up a page on its website informing consumers about how the Capital One refunds will be processed and warning about “scammers” who tend to pop up at times like these, asking for personal information and the like. It’s certainly not easy being a consumer these days. Just when you’ve dodged the Vikings and Visigoths, loose bands of marauders are sneaking up on your back.