Discover to Refund $200M for Misleading Buyers of Card 'Add-Ons'

The issuer of Discover cards has agreed to refund about $200 million to more than 3.5 million consumers and pay a $14 million civil money penalty as part of an agreement with the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB).
The agencies allege that Discover used deceptive telemarketing and sales tactics to mislead consumers into paying for various credit card “add-on products” – including payment protection, credit score tracking, identity theft protection, and wallet protection, the FDIC and CFPB said in a statement.
Discover’s telemarketing pitches deceived consumers, who may not have known or understood that they were purchasing a product, the agencies said. Discover’s telemarketers also downplayed key terms and spoke quickly about prices and terms of the add-on products.
For example, Discover’s telemarketers implied that the services were free “benefits,” rather than products for which a fee would be applied to their accounts.
The two agencies also said that Discover:
• Misled about whether customers had purchased the products: The telemarketing scripts frequently suggested that consumers would not be charged for the products until after having a chance to review printed materials from Discover. Discover, however, did not provide consumers with the information until after Discover had already initiated the consumer’s purchase of a product.
• Enrolled without customers’ consent: Discover representatives processed the add-on product purchases without some consumers’ consent. These consumers were then charged for the product on their Discover card.
• Withheld material information about eligibility requirements for certain benefits: Discover’s telemarketers typically did not disclose critical eligibility requirements for certain payment protection benefits, such as exclusions for pre-existing medical conditions and certain limitations concerning employment.
Under the order, Discover has agreed to:
• Stop deceptive marketing: Discover is required to institute certain changes to its telemarketing of these products that are designed to ensure that these unlawful acts do not occur again.
• Pay restitution to consumers who purchased the products: Discover will pay approximately $200 million in restitution to more than 3.5 million consumers who were charged for one or more of the products between December 1, 2007 and August 31, 2011. All consumers affected by Discover’s deceptive practices regarding these products, except those who affirmatively made use of Payment Protection, will receive restitution with amounts varying depending on when they purchased, and how long they held, the add-on products. All consumers will receive at least 90 days’ worth of fees paid (minus any refunds they have already received), with approximately 2 million consumers receiving full restitution of all of the fees they paid.
• Provide refunds or credits without any further action by consumers: Consumers are not required to take any action to receive their credit or check. If an affected consumer is still a Discover customer, he or she will receive a credit to his or her account. If an affected consumer is no longer a Discover credit card holder, the consumer will receive a check in the mail or have any outstanding balance reduced by the amount of the refund.
• Submit to an independent audit: Compliance with the restitution terms of the order will be assured through the work of an independent auditor, who will report to the CFPB and FDIC on Discover’s compliance with the joint CFPB-FDIC Consent Order.
• Pay a $14 million penalty: The CFPB and the FDIC imposed civil money penalties of $14 million. Discover will pay $7 million of that penalty to the U.S. Treasury and $7 million to the CFPB’s Civil Penalty Fund.
The full text of the Joint FDIC-CFPB Consent Order with Discover is available here.

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