More than 2 million Capital One credit card customers will get
refunds totaling $150 million as part of a settlement reached with
federal banking and consumer protection regulators. The bank also
must pay $60 million in penalties for deceptive marketing and
billing practices, according to the agreement announced
According to federal authorities, Cap One failed to monitor and
control third-party vendors that operated call centers pitching
credit card add-on products such as payment protection plans and
credit monitoring services. The vendors used high-pressure sales
and marketing tactics and misleading or deceptive practices to sign
customers up. In some cases, customers were duped into signing up
for these services and were rebuffed when they tried to cancel.
The average refund will be less than $100, according to the
It was the first enforcement action taken by the federal
consumer financial watchdog agency -- which marks its first year of
operations on July 21.
"We are putting companies on notice that these deceptive
practices are against the law and will not be tolerated," Richard
Cordray, director of the Consumer Financial Protection Bureau
(CFPB), said in a statement. The settlement was part of a joint
effort between the consumer watchdog, which polices the financial
services sector for abusive or deceptive practices, and the Office
of the Comptroller of the Currency, which oversees large bank
"Our agencies' actions will require the bank to pay up to $210
million in penalties and restitution," said OCC comptroller Thomas
Curry. The Cap One payout includes: about $140 million in refunds
to customers who purchased payment protection plans after Aug. 1,
2010; about $10 million to customers who signed up for credit
monitoring services between March 2006 and June 2011; $35 million
in penalties to the OCC; and $25 million in penalties to the
Capital One issued a statement on its website saying affected
customers should begin receiving refunds later this year.
Charges for the services will continue to appear on monthly
statements until the refunds are issued, according to a July 18
document filed by the bank with the U.S. Securities and
Exchange Commission (SEC). According to the filing, Cap One has
continued to bill and collect revenues for the add-on services and
took in $24 million in revenues from them during the second quarter
Bank apologizes to customers
"We are accountable for the actions that vendors take on our
behalf," said Ryan Schneider, president of the bank's card
business. "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."
According to the bank, after learning about the problem in late
2011, Capital One stopped all phone sales of the products, stopped
the vendors from selling them, and identified the affected
customers. The bank said it also beefed up oversight of vendors and
took steps to prevent future violations.
The CFPB's enforcement chief, Kent Markus, said the restitution
will also include refunds of any interest or over-limit fees
customers may have been charged as a result of the products.
Current Capital One customers will receive a credit on their
accounts and those who are no longer customers will receive a
"Customers do not have to opt in to this," Markus said. "They
are in automatically. Cap One has to identify the customers."
He said an independent auditor will review the bank's refund
process. Those who do not receive refunds but believe they should,
are asked to call the bank first before contacting either the CFPB
at www.consumerfinance.gov or the OCC at
CFPB's examiners discovered that the bank's third-party call
center vendors were engaging in deceptive tactics while signing new
customers up for additional products -- called add-ons. These
include services such as payment protection, which allows
cardholders to suspend their minimum monthly payments for up to 12
months should they become unemployed or disabled, or allow the debt
to be forgiven in the event of death or permanent disability. Other
services included credit monitoring, identity theft protection,
access to credit education specialists and daily monitoring and
According to the CFPB, Capital One call center vendors used
high-pressure sales tactics to push these products on new credit
card customers with low credit scores or low credit limits when
they called to activate their cards.
The tactics included:
- Misleading customers about the benefits of the services, such
as telling them the products would improve their credit scores or
help increase the credit limit on the Cap One cards.
- Misrepresenting the products, including not informing
customers the services were optional or telling some they
couldn't get full information about the product unless they
purchased them. Customers were also told they could cancel the
services at any time, but were met with resistance when they
called to cancel.
- Misleading customers about their eligibility for protection
plans. Some vendors signed and billed ineligible customers, for
example, people who were already unemployed or
- Claiming the products were free when they weren't.
- Enrolling customers in services without their
Cordray said the Capital One action should serve as an alert to
consumers who may be considering signing up for these products and
a wake-up call to banks that are marketing them. The bureau issued
a consumer advisory on how to spot and avoid deceptive credit card
products. Other lenders were put on notice that the bureau is
monitoring how add-on products are marketed and will take action
High-pressure sales of payment or debt protection plans and
other fee-based products are common in the credit card industry. A
2011 report from the Government Accountability Office found that
customers got only 21 cents in benefits for every dollar spent on
debt protection plans with the nine largest card issuers in 2009.
Several states, including Hawaii, Minnesota and West Virginia, have
filed suit against Capital One, Bank of America, Chase and Citi.
Authorities said federal actions and fines against other banks are
likely in the near future.
Cordray said the CFPB is investigating other credit card issuers
for similar practices but declined to name which lenders are
"We know these deceptive marketing tactics for credit card
add-on products are not unique to a single institution," he said.
"We expect more announcements as our ongoing work continues to
Discover's practices scrutinized
Discover may be one of them. In documents with filed the SEC
earlier in 2012, the bank revealed that the CFPB and the Federal
Deposit Insurance Corp. (FDIC), which regulates Discover, were
investigating its practices.
According to the bank: "The FDIC and the CFPB have notified
Discover Bank that they plan to take a joint enforcement action
against Discover Bank. Before the FDIC's and the CFPB's review
began, Discover Bank made changes to both its fee-based products
and program, and Discover Bank believes its current business
practices substantially address the regulators' concerns. The
enforcement action could include civil monetary penalties,
significant restitution and additional business practice
A Discover company spokesman emailed a statement following the
Capital One announcement: "Discover continues to work with the FDIC
and CFPB toward a resolution of this matter as we remain focused on
providing our card members with the quality products and service
they expect from us."