We use cookies to give you the best online experience. By using our website you agree to our use of cookies in accordance with our cookie policy. Learn more here.Close Me
Today, the Consumer Financial Protection Bureau
("CFPB") engaged in its first major enforcement action by
requiring Capital One to refund 2 million consumers approximately
$140 million for profits gained from deceptive marketing practices
related to its credit card protection services. The settlement
was reached following an investigation, prompted by a March 2011
Government Accountability report on the high costs of credit card
protection services, and numerous consumer complaints about Capital
One's credit card add-on products. The add-ons consisted
of certain payment protection and credit monitoring
products. The consent order not only required the $140 million
refund, but also fined Capital One with a $25 million civil penalty
and required it to take a variety of remedial measures, including
developing a compliance plan before reengaging in these
programs.
The CFPB reports that the deceptive practices targeted customers
with low credit scores and used five primary means of coaxing them
into buying the add-on products. These five practices
were:
Misleading customers telling them that the products would
increase their credit score and their credit limit.
Selling the products to ineligible individuals who were
unemployed and disabled.
Falsely reporting that enrollment was a requirement to obtain a
credit card or that in order to gain full information about the
program they would have to enroll with the option of canceling
later.
Falsely reporting that the products were free of charge, when
in actuality they were being charge monthly fees.
Enrolling customers without their consent.
Under the terms of the consent order, Capital One must cease
marketing these products until its compliance program is
approved. They also were required to pay the payment
protection claims for all the costumers who's claims were
denied based on eligibility. Lastly, Capital One had to
establish a simple mechanism for customers to receive the refunds,
either through immediate credits to current customers' accounts
or through checks for those who no longer hold a Capital One
account.
The decision by the CFPB is illustrative of the strong stance it
is taking against deceptive marketing tactics. Moreover, the
CFPB is using its first enforcement action to show that it fully
intends to use all its authority under Dodd-Frank; indeed, it used
all three of its statutory powers. In addition to
issuing the consent order, the CFPB is also sending out two
consumer advisories, one for Capital One costumers and one for the
general public, and a CFPB bulletin for the banking
industry. As Richard Cordray, CFPB director, stated,
"[w]e are putting companies on notice that these deceptive
practices are against the law and will not be tolerated."
The CFPB efforts were done in conjunction with the Office of the
Comptroller of the Currency ("OCC"), which is also
ordering restitution of approximately $150 million from Capital
One. The OCC also issued a civil penalty of $35 million
dollars. This first action is significant both because the
civil penalties were very high given the amount at
issue (encompassing 43% of the actual total restitution) and
the CFPB reports that it will be taking similiar actions in the
future.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In this week’s episode of "As the CFPB Turns" questions remain regarding Director(?) Richard Cordray’s constitutional authority to act as the Director of the CFPB.
The Consumer Financial Protection Bureau issued a guidance bulletinannouncing that it will treat indirect auto lenders as creditors subject to the Equal Credit Opportunity Act.
The Consumer Financial Protection Bureau announced that it had settled enforcement actions against four insurance companies in connection with alleged improper payments between the insurance companies and mortgage lenders.
