Known for its catchphrase of “What’s in Your Wallet?”, Capital One, which is apparently both Jimmy Fallon and Alec Baldwin’s favorite credit card, was ordered to reimburse $150 million to more than two million customers on Wednesday.
The company was found guilty of selling consumers credit card products they either did not want or could not use. This, courtesy of the Consumer Financial Protection Bureau, marks the first enforcement action in the financial sector since its inception a year ago.
The news came on Wednesday that the CFPB found that at least one vendor working for the bank had “pressured and deceived” credit card holders into buying certain financial products that had been presented as a way to protect them from identity theft and hardships, such as disability, unemployment or other unforeseen setbacks.
Heart of the Sector
These actions include fines that must be paid to various authorities and regulatory bodies hits right at the heart of the sector’s profits and what some say are controversial practices. Other credit card companies and banks are taking notice, too. Specifically, Bank of America, JPMorgan Chase and HSBC are taking notice – they too have been sued. Hawaii’s attorney general accused the three banking giants of using improper tactics to sell other similar products to its residents. These tactics, referred to as “add-ons” have been deemed as costly and ineffective for consumers.
Speaking on behalf of his agency, Director Richard Cordray said in a presser on Wednesday,
We know these deceptive marketing tactics for credit card add-on products are not unique to a single institution. We expect announcements about other institutions as our ongoing work continues to unfold.
Leave No Debt
The products and services at the heart of the suit promises forgive or at least trim the debts of card holders in the event that they lose their jobs, become disabled or die. It’s historically been a welcome addition to many consumer accounts who don’t wish to leave debt to family members or who were worried about an unstable economy. On average, credit card companies charge up to 80 cents for every $100 of debt that is insured, the consumer agency said.
In addition to deceptively pushing those plans, regulators say, Capital One offered credit monitoring, a feature that came with identity-theft protection and “credit education” for customers with a spotty borrowing history.
Capital One did not admit to or deny any of the findings, even as it said the wrongdoing had occurred at outside call centers that “did not always adhere to company sales scripts”, according to the credit card president, Ryan M. Schneider. However, he did acknowledge that the bank was “accountable for the actions that vendors take on our behalf.”
In its own presser, Capital One said,
We apologize to those customers who were impacted and we are committed to making it right.
Capital One must temporarily cease its marketing of those add on products while submitting to an independent audit. In the meantime, consumers, referred to as “victims” in the paperwork, will begin to receive refunds later this year, thought to be less than $100 per customer.
Meanwhile, the Office of the Comptroller of the Currency is requiring the credit card company to reimburse customers “harmed by unfair billing practices” that unfolded over a span of a decade, between 2002 and this past June. This suit said the company billed consumers, though it failed to provide the services it was billing the consumers for. A spokesperson for this agency said that unfair and deceptive bank practices were unacceptable and “would not be tolerated”.
For some time now, consumers have grown increasingly angry over various banks’ actions and practices. With various suits and accusations being settled, including a $450 settlement by Barclays that included allegations that it manipulated interest rates, the CFPB remains committed to protecting the consumers around the nation. JPMorgan Chase is also dealing with several scandals that affect its customers as well.
The announcement by CFPB regarding the Capital One settlement is the first time it’s been able to “flex its enforcement muscle”, though as the agency continues to move forward, it’s expected consumers might finally see a more balanced playing field within the financial sector.
The Consumer Financial Protection Bureau was born of the Dodd-Frank overhaul, which was in response to the 2008 banking and financial crisis. With a growing database of credit card company complaints, the bureau has no shortage of possible targets. For those concerned about who the agency would ultimately benefit, Wednesday’s announcement should put those concerns to rest.
In the long run, says one consumer attorney, the bureau will likely put its investigative powers to use on a more regular basis. Further, it’s likely to encourage consumers to file class action lawsuits, said Stacie McGinn, an attorney with Simpson, Thacher & Bartlett law firm.
This practice is hardly limited to Capital One
said Richard Golomb, a lawyer in Philadelphia who has brought class-action lawsuits against lenders for payment protection insurance.