The products Capital One's vendors pitched came with names such as ""Privacy Guard," "Credit Inform Premier," or "Payment Protection," and they would have been of questionable value even if all the details had been fully disclosed.
But two federal regulators, including the new Consumer Financial Protection Bureau, said today that the products had been pushed deceptively by bank-affiliated telemarketers - some for nearly a decade. They ordered Capital One to pay about $150 million in refunds to about 2.5 million cardholders and a total of $60 million in penalties.
In a joint action with the Office of the Comptroller of the Currency, the CFPB also ordered Capital One to pay a $25 million penalty for tactics used "to pressure or mislead consumers" into buying the add-on services when they activated their credit cards, and the OCC's order added $35 million in penalties. The consumer-protection agency said marketers targeted the pitches at customers with low credit scores or low credit limits, and ordered $140 million in refunds.
The CFPB, which turns a year old this Saturday, described the action as its "first public enforcement action." It said the order resulted from an examination of the bank, a subsidiary of a Virginia financial institution with about $295 billion in total assets. The OCC's consent order includes an additional $10 million in restitution for unfair billing practices.
Capital One said in a news release that it had reached agreements with both regulatory agencies to resolve their investigations of sales and billing practices, halted by January 2012, in which "Capital One's third party vendors did not always adhere to company sales scripts and sales policies." Its statement said the bank "did not adequately monitor their activities."
"We are accountable for the actions that vendors take on our behalf," Ryan Schneider, president of Capital One's payment-card business, said in the statement. "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."
In a statement, CFPB Director Richard Cordray said customers had been "pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use.” He said the bureau was “putting companies on notice that these deceptive practices are against the law and will not be tolerated.”
Is this an isolated case? Probably not. In a separate blog post today aimed at customers of other card issuers, "How to stop mystery credit card fees," the CFPB's Gail Hillebrand advises all cardholders to watch their statements for add-on services they may not want or understand.
The OCC's consent order (pdf) identified one of the Capital One vendors as Affinion, one of several companies that was the subject of a Senate report in 2010 about mysterious charges on credit-card bills - often linked to "membership clubs" that bill small, recurring charges for services people typically said they didn't actually want. You can read here about that report, and about the "magic words" it suggests for getting your money back.
The CFPB said the order against Capital One resulted from an examination of its call-center practices, one of its new kinds of consumer-protection authorities under the Dodd-Frank financial reform. It said the Capital One customers were: