CFPB Issues First Enforcement Action

October 4, 2012

Authored by: Bryan Cave

In its first public enforcement action, the Consumer Finance Protection Bureau (CFPB) found that Capital One Bank, (USA) N.A. engaged in deceptive marketing practices, which the CFPB says mislead customers into buying credit card “add-on products.” The large size of the total payment required under this action ($210 million) has raised speculation that the CFPB will be seeking larger penalties than bank regulators in the past, because such previous penalties have not stopped banks from using unfair tactics to seek profits.

The CFPB found through its supervision process that Capital One’s call-center vendors engaged in deceptive tactics to sell its credit card add-on products, which included payment protection plans, debt forgiveness and credit monitoring services. To activate newly issued credit cards, Capital One customers with low credit scores or low credit limits were directed to a third-party call center and subjected to “high-pressure [sales] tactics.” In particular, the CFPB found that Capital One customers were misled about the benefits of the add-on products, deceived about the nature of the products, mislead about eligibility, misinformed about the cost of the products and, in some cases, enrolled without their consent.

The CFPB’s enforcement action requires Capital One to cease all marketing of these products until the Bureau approves a compliance plan to help ensure against future violations; refund to 2 million customers approximately $140 million, which covers the cost of these add-on products as well as a refund of the finance charges associated with fees paid, any over-the-limit fees incurred and interest; pay claims denied based on ineligibility at enrollment; make convenient repayment to consumers; assure compliance with the terms of the consent order through the work of an independent auditor and pay a $25 million civil money penalty into the Bureau’s Civil Penalty Fund.

In prepared remarks regarding the action, CFPB Director Richard Cordray stated that deceptive marketing tactics related to credit card add-on products are not unique to Capital One, and the CFPB expects announcements about actions against other institutions as its ongoing work continues.

The OCC announced a concurrent cease and desist action and assessment of a $35 million civil money penalty against Capital One for failure to develop and implement a comprehensive and effective risk-management program to detect and prevent unfair and deceptive practices, along with an order to make $150 million in restitution payments to 2.5 million affected customers. Restitution payments made by Capital One pursuant to the OCC’s order will also satisfy identical payment obligations required by the CFPB.

The CFPB’s press release, which contains links to its consent order as well as a fact sheet regarding the action, is available here.   The OCC’s press release, with links to its cease and desist order and civil money penalty order, is available here.