Capital One to Pay $140M in Refunds for ‘Misleading’ Credit Card Add-Ons

The U.S. Consumer Financial Protection Bureau has ordered Capital One Bank to refund about $140 million to two million customers and pay an additional $25 million for pressuring or misleading consumers into paying for credit card “add-on” products.
In the year-old agency’s first enforcement action, the CFPB found that Capital One’s call-center vendors deceptively sold these add-ons, including payment protection and credit monitoring services.
“Today’s action puts $140 million back in the pockets of two million Capital One customers who were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use,” said CFPB Director Richard Cordray. “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”
“Payment protection” add-ons allow consumers to request that the bank cancel up to 12 months of minimum payments – roughly one percent of their credit card balance – if they encounter certain events, such as unemployment and temporary disability. It also provides debt forgiveness in the event of death or permanent disability.
Another product involves “credit monitoring,” including identity-theft protection, access to “credit education specialists,” and, in some cases, daily monitoring and notification.
Consumers with low credit scores or low credit limits were offered these products by Capital One’s call-center vendors when they called to have their new credit cards activated.
The CFPB said 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. And they were deceived into believing that they would be enrolling in a free product, rather than making a purchase, the agency said.
In some 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.
Under the Dodd-Frank Wall Street reform law, the CFPB has the authority to take action against institutions engaging in “unfair, deceptive, or abusive practices.”
The agency said that Capital One has agreed to:
End deceptive marketing: Capital One has ceased all marketing of these products, and will not resume doing so until Capital One submits a compliance plan, acceptable to the Bureau, which helps ensure these unlawful acts do not occur in the future.
Complete repayment, plus interest, to two million consumers: Capital One will pay approximately $140 million to all of the estimated two million consumers who either initially enrolled in a product on or after August 1, 2010, or who tried to cancel a product on or after August 1, 2010, but were persuaded to keep the product after speaking with a call center representative. In addition to the amount paid for the product, card members will receive a refund of the associated finance charges, any over-the-limit fees resulting from the charge for the product, and interest.
Pay claims denied based on ineligibility at enrollment: For any of these eligible consumers whose payment protection claims were previously denied because their loss occurred prior to enrollment (because of unemployment, disability, etc.), Capital One will pay their claims as if they had been eligible, if that amount is greater than the refund for that consumer.
Convenient repayment for consumers: If the consumers are still Capital One customers, they will receive a credit to their accounts. If they are no longer a Capital One credit card holder, they will receive a check in the mail. Consumers are not required to take any action to receive their credit or check.
Independent audit: Compliance with the terms of this agreement will be assured through the work of an independent auditor, who will determine if Capital One has complied with the CFPB’s Consent Order.
$25 million penalty: Capital One will make a $25 million penalty payment to the CFPB’s Civil Penalty Fund.
The CFPB’s action is in coordination with the Office of the Comptroller of the Currency (OCC), which is separately ordering restitution of about $150 million from Capital One. This amount includes the same $140 million refund to be paid to the two million customers harmed by the deceptive marketing practices identified by the CFPB’s examiners.
The OCC’s order also includes separate restitution for additional consumers harmed by unfair billing practices taking place between May 2002 and June 2011 in violation of the Federal Trade Commission (FTC) Act.
For the combined activity, the OCC is assessing a $35 million civil money penalty against Capital One.
In conjunction with today’s enforcement action, the Bureau is releasing two Consumer Advisories. One advisory is intended to make Capital One customers aware of today’s action and the other serves as a general warning to consumers who may encounter such deceptive practices.

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