Capital One ordered to pay $210M in refunds, penalties

Posted: July 20, 2012

The products that Capital One's vendors pitched came with names such as "Privacy Guard," "Credit Inform Premier," or "Payment Protection," and they would have been of questionable value even if all the details had been fully disclosed.

But two federal regulators, including the new Consumer Financial Protection Bureau, said Wednesday that the products had been pushed deceptively by bank-affiliated telemarketers — some for nearly a decade. They ordered Capital One to pay about $150 million in refunds to about 2.5 million cardholders and a total of $60 million in penalties.

In a joint action with the Office of the Comptroller of the Currency, the CFPB ordered Capital One to pay $140 in refunds plus a $25 million penalty for tactics used "to pressure or mislead consumers" into buying the add-on services when they activated their credit cards, and the OCC's order added $45 million in refunds and penalties.

The CFPB, which turns a year old this Saturday, described the action as its "first public enforcement action," and said marketers targeted the pitches at customers with low credit scores or low credit limits. It said the order resulted from an examination of the bank, a subsidiary of a Virginia financial institution with about $295 billion in total assets.

Capital One said in a news release that it had reached agreements with both regulatory agencies to resolve their investigations of sales and billing practices, halted by January 2012, in which "Capital One's third party vendors did not always adhere to company sales scripts and sales policies." Its statement said the bank "did not adequately monitor their activities."

"We are accountable for the actions that vendors take on our behalf," Ryan Schneider, president of Capital One's payment-card business, said in the statement. "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."

CFPB Director Richard Cordray said in a statement that customers had been "pressured or misled into buying credit card products they didn't understand, didn't want, or in some cases, couldn't even use." He said the bureau was "putting companies on notice that these deceptive practices are against the law and will not be tolerated."

The bureau said consumers don't need to do anything to get a refund if they are owed one under the order.

In a separate blog post Wednesday aimed at customers of other card issuers, "How to stop mystery credit card fees," the CFPB's Gail Hillebrand advises all cardholders to watch their statements for add-on services they may not want or understand.

The OCC's consent order identified one of the Capital One vendors as Affinion, one of several companies that was the subject of a Senate report in 2010 about mysterious charges on credit-card bills — often linked to "membership clubs" that bill small, recurring charges for services people typically said they didn't actually want.

The CFPB said the order against Capital One resulted from an examination of its call-center practices, one of its new kinds of consumer-protection authorities under the Dodd-Frank financial reform. Among problems uncovered, it said the Capital One customers were:

Misled about the benefits of the products: "Consumers were sometimes led to believe that the product would improve their credit scores and help them increase the credit limit on their Capital One credit card," the CFPB said.

Deceived about the nature of the products: Consumers were not always told that the products were optional, and had trouble canceling.

Misled about eligibility: "Although most of the payment protection benefits kicked in when consumers became disabled or lost a job, some call center representatives marketed and sold the product to ineligible unemployed and disabled consumers."

Contact Jeff Gelles at 215-854-2776 or jgelles@phillynews.com.

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