Capital One Bank, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau announced today that they had reached an agreement to resolve claims of deceptive marketing practices by Capital One's vendors. The agreement will include $210 million in consumer refunds and regulatory penalties that Capital One will have to pay for its lack of oversight regarding its vendors sales of credit protection products.
From August 2010 to January 2012, Capital One said in a statement, the bank's third party vendors did not always follow the company's sales policies for selling Payment Protection and Credit Monitoring products to new credit card customers. The bank acknowledged in the statement that it had failed to monitor its vendors sales activities. "We are accountable for the actions that vendors take on our behalf," Ryan Schneider, president of Capital One's Card business, said in the statement. "These marketing calls were inconsistent with explicit interactions we provided to agents for how these products should be sold."
The Payment Protection product allowed customers to request for a cancellation of payments if the customer encountered an event like unemployment or temporary disability, and provided debt forgiveness in the case of death or permanent disability. The Credit Monitoring product provided services including identity theft protection, credit education specialists and daily monitoring.
According to the Consumer Financial Protection Bureau, Capital One's third-party vendors would offer these products to consumers with low credit scores when they called to activate their new cards. Consumers, the bureau said, were sometimes led to believe that the products would improve their credit scores or were not told that buying the products was optional.
Other customers were told that the products were free; or that they could not receive full information about the product unless they bought it, but they could cancel the product if they wished. Many of these customers, the bureau said, then had difficulty canceling their products.
Some call center representatives also sold the products to consumers who were ineligible because they were unemployed or disabled, according to the bureau. These customers had to pay the full fees for the products but could not receive the benefits; and when some of these customers filed claims they were denied because of their ineligibility.
Some of the call center vendors even processed the add-on product purchases without the customers' consent. These customers were billed for the products and then often had trouble canceling them, the bureau added.
As a result of these actions - and other billing practices that violated Section 5 of the Federal Trade Commission Act - Capital One will have to pay $150 million in refunds to more than 2 million affected customers. Customers will be reimbursed for the amount they paid for the product, any associated charges and any over the-the-limit fees from the products, plus interest. The bank will also have to pay a $35 million civil money penalty to the Office of the Comptroller of the Currency for violating the Federal Trade Commission Act, and another $25 million penalty to the Consumer Financial Protection Bureau's Civil Penalty Fund for its deceptive marketing practices.
"We are putting companies on notice that these deceptive practices are against the law and will not be tolerated," said Richard Cordray, director of the CFPB, in a statement, adding that Capital One customers had been pressured into buying products that they didn't understand, want or use.
The OCC and CFPB also required that Capital One stop the sale and marketing of its credit protection products until the bank submits an acceptable compliance plan to regulators. Capital One said that it first learned of these practices back in late 2011, and immediately stopped the practices. The bank said that customers will start receiving their reimbursements later this year. Those consumers with a Capital One account will receive a credit to their account, the bank said. The other consumers will receive a check in the mail. The bank added that it is working to improve its internal quality controls and monitoring of its vendors.
Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio