Capital One must repay card holders it duped
CHICAGO (MarketWatch) -- Federal regulators on Wednesday ordered
The McLean, Va., company (COF) also was fined $60 million to settle "deceptive marketing tactics" leveled by the Consumer Financial Protection Bureau, empowered a year ago as the nation's consumer watchdog.
The fines include a $25 million civil penalty that is the CFPB's first enforcement action. The Office of the Comptroller of Currency, the federal agency that oversees banking operations, will get $35 million in penalties.
"We are putting companies on notice that these deceptive practices are against the law and will not be tolerated," CFPB director Richard Cordray said.
The CFPB probe found that Capital One's third-party call-center vendors strong-armed consumers with low credit scores or low credit limits into add-on products when they called to have their new credit cards activated.
Capital One blamed the vendors who "did not always adhere to company sales scripts and sales policies" and apologized to consumers.
"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."
The company also must meet a compliance regime through an independent auditor.
On a conference call Wednesday about the violations, Cordray put companies on notice. "Merely contracting out does not absolve you of direct responsibility," he said.
The CFPB said the Capital One vendors used "high-pressure tactics" to sell payment-protection and credit-monitoring plans, such as identity-theft protection, access to so-called credit education specialists and even daily monitoring and notification.
Among the tactics were promises that the products would help consumers up their credit scores and raise credit limits.
"Consumers were not always told that buying the products (were) optional," according to the CFPB. "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."
In other cases, Capital One representatives sold the payment-protection plans, which cover up to 12 months of minimum payments if certain "life events" like job loss or temporary disability occur, to people who were already unemployed or disabled.
Those consumers were ineligible but didn't know it and paid full fees thinking they could file claims later, which were then denied.
As part of the penalty, Capital One must pay those claims now "as if they had been eligible, if that amount is greater than the refund for that consumer," the CFPB ordered.
The reimbursements, refunded either through credits on consumer accounts or direct checks, must be paid to those who were "harmed by the bank's unfair practices" in payment-protection and credit-monitoring products on or after Aug. 1, 2010, including any over-limit fees and finance charges.
The bank also is required to pay those who bought Affinion credit-monitoring products from March 1, 2006, to June 21, 2011, or for unfair billing practices that occurred from May 31, 2002, to May 31, 2011, the OCC said.
The OCC also ordered the bank to "stop the sales and marketing of any debt-suspension product, debt-cancellation product, credit- and identity-monitoring products, or any other similar products, and to take other corrective action to (insure) compliance with consumer protection laws."
On the call, Cordray warned that similar actions will be coming "more steadily now and in the future."
"We are coordinating closely with our fellow regulators," he said. "This is not unique to a single institution and we do expect that there will be more activity."