Posted on 31st Jul 2012 @ 12:04 PM

Just a couple of days shy of the Dodd-Frank Act’s second anniversary, the statute’s most significant regulatory creation, the Consumer Financial Protection Bureau, issued its first enforcement action—an order requiring Capital One Bank (U.S.A.), N.A. to refund approximately $140 million to two million customers and pay an additional $25 million penalty.

The enforcement action resulted from a CFPB examination that identified deceptive marketing tactics used by Capital One’s vendors to pressure or mislead consumers into paying for “add-on products” such as payment protection and credit monitoring when they activated their credit cards.

“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.”

CFPB said the marketing of the credit card add-ons was misleading and deceptive in at least four ways: (1) many consumers were wrongly encouraged to believe they had to purchase these products to activate their cards; (2) some consumers were either deceived into thinking these products were free or were simply enrolled without their full consent and automatically billed; (3) some consumers were wrongly led to believe that these products would improve their credit score or help them build good credit: and (4) some consumers were sold the product even though they were disabled or unemployed and thereby ineligible for some of the benefits being touted.

OCC CMP—CFPB Not Alone

The CFPB action was taken in coordination with the Office of the Comptroller of the Currency, which separately ordered restitution of approximately $150 million from Capital One, including the same $140 million refund to be paid to the approximately two million customers harmed by the deceptive marketing practices identified by the CFPB’s examiners.

The OCC’s order also includes separate restitution for additional consumers harmed by unfair billing practices taking place between May 2002 and June 2011 in violation of Section 5 of the Federal Trade Commission Act. For the combined activity, the OCC assessed a $35 million civil money penalty against Capital One.

Comptroller of the Currency Thomas Curry said the joint enforcement “demonstrates interagency cooperation at its best.”

Cordray:  Deceptive Practices Will Not be Tolerated

In conjunction with the Capital One enforcement action, CFPB issued consumer advisories to alert not only Capital One consumers about their refund, but also to flag these practices for customers of other institutions who may be considering or using these products. The Bureau also issued a compliance bulletin that puts other institutions on notice that the CFPB will not tolerate deceptive marketing practices, 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,” the CFPB said.

“We know these deceptive marketing tactics for credit card add-on products are not unique to a single institution,” CFPB director Richard Cordray said. “The compliance bulletin puts all financial institutions on notice about these prohibited practices and reinforces that they must make sure their service providers are complying with the law. We expect announcements about other institutions as our ongoing work continues to unfold. Regardless, the best time for all institutions to be reviewing and ensuring their practices in this area is right now.”

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