FDIC Announces Settlement with Comenity Bank over Deceptive Charges
A bank accused of deceptive practices will have to pay big after coming to a settlement with the Federal Deposit Insurance Corporation (FDIC).
Last week, the federal agency announced that Comenity Bank has agreed to pay a civil money penalty (CMP) of $2 million and provide restitution of approximately $53 million to harmed consumers, while Comenity Capital Bank will pay a CMP of $450,000 and provide restitution of approximately $8.5 million. The two branches had been accused of deceptive practices related to the marketing and servicing of credit card "add-on products." This activity put the bank in violation of Section 5 of the Federal Trade Commission (FTC) Act.
Comenity Bank is located in Wilmington, Delaware, and Comenity Capital Bank is in Salt Lake City, Utah.
According to the FDIC, the banks made a practice of offering credit cards to consumers that were co-branded with select retailers and offered "Account Assure" or "Account Assure Pro", which are payment protection/debt cancellation add-on products to the credit cards. However, these protections did not work as advertised.
The FDIC determined that the banks violated Section 5 by:
- Representing to consumers that they would not be charged a fee for the products if their accounts had no balances, but charging fees to consumers in those circumstances.
- Making material misrepresentations and omissions regarding the refund process applicable to consumers' cancellations of the products within the first 30 days of enrollment.
- Making material misrepresentations and omissions regarding the conditions for receipt of the gift cards or account statement credits offered as incentives for enrolling in the products.
The FDIC orders, in part, require the banks to correct the violations of law, ensure future compliance with Section 5, and develop and implement a comprehensive restitution plan for all consumers adversely impacted by the violations. The FDIC orders require restitution for violations that occurred between January 2008 and September 2014. Consumers who are eligible for relief under the settlement are not required to take any action to receive restitution.