The Consumer Financial Protection Bureau (CFPB) has announced its first public enforcement action with an order requiring Capital One Bank (U.S. A.), N.A. to refund approximately $140 million to two million customers, along with an additional $25 million penalty.
This action results from a CFPB examination that identified deceptive marketing tactics used by Capital One vendors to pressure or mislead consumers into paying for unnecessary 'add-on products' when activating new credit cards. Those with low credit scores and low credit limits were often the ones being targeted.
'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.'
The 'add-on products in question included 'payment protection,' which allows 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 life events like unemployment and temporary disability. It also provides debt forgiveness in the event of death or permanent disability.
Another product was 'credit monitoring,' with services such as identity-theft protection, access to 'credit education specialists,' and in some cases, daily monitoring and notification.
According to the CFPB investigation, as a result of the high-pressure tactics Capital One representatives used to sell these add-on products, consumers 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.
- Deceived about the nature of the products: Consumers were not always told that buying the products was optional. In other 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.
- 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. Despite paying the full fees, they could not get all the benefits of payment protection; some later filed claims that were denied because their "loss"(e.g. loss of job or onset of disability) occurred prior to enrollment.
- Misinformed about cost of the products: Consumers were sometimes led to believe that they would be enrolling in a free product rather than making a purchase.
- Enrolled without their consent: Some call center vendors processed the add-on product purchases without the consumer's consent. Consumers were then automatically billed for the product and often had trouble cancelling the product when they called to do so.
To further protect consumers, the CFPB is issuing a compliance bulletin that puts other institutions on notice that deceptive marketing practices will not be tolerated, and institutions will be held responsible for the actions of their third-party vendors. Companies engaging in deceptive practices will be expected to refund fees paid by consumers and, particularly where practices are widespread, pay an appropriate penalty.
If you're a Capital One customer eligible for a refund and you have an open account, the refund will be automatically credited to your account. If you're eligible but no longer have an account with Capital One, a check will be mailed to you. You should expect to receive your refund later this year. You don't need to take any action to get your refund.
If you have questions about whether you are entitled to a refund, please contact Capital One at 1-800-955-7070.