We have seen a recent string of enforcement actions from the Consumer Financial Protection Bureau involving deceptive marketing practices. There are lessons for all banks to learn from these actions.
What the Actions Had in Common
- The action was taken by the CFPB in coordination with another federal regulator (FDIC in one and OCC in the other).
- The action involved huge financial institutions.
- The action resulted in huge penalties.
- The actions involved deceptive acts in connection with marketing add-on products in connection with credit cards.
- The deceptive actions were similar in both cases.
- The corrective action was similar in both cases.
Discover Bank – On September 24, 2012, the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB) announced a joint public enforcement action with an order requiring Discover Bank to refund approximately $200 million to more than 3.5 million consumers and pay a $14 million civil money penalty.
- The joint investigation concerned deceptive telemarketing and sales tactics used by Discover to mislead consumers into paying for various credit card “add-on products” – payment protection, credit score tracking, identity theft protection, and wallet protection.
- Discover’s telemarketing scripts contained misleading language likely to deceive consumers about whether they were actually purchasing a product. Discover’s telemarketers also often downplayed key terms and spoke quickly during the part of the call in which the prices and terms of the add-on products were disclosed. Because of the misleading language in the scripts and the actions of Discover’s telemarketers, consumers were:
- Misled about the fact that there was a charge for the products;
- Misled about whether they had purchased the products;
- Enrolled without their consent; and
- Withheld material information about eligibility requirements for certain benefit.
Under the order, Discover has agreed to:
- Stop deceptive marketing;
- Pay restitution in the amount of approximately $200 million to 3.5 million consumers who purchased the products;
- Provide refunds or credits without any further action by consumers;
- Submit to an independent audit; and
- Pay a $14 million penalty.
Capital One – On July 18, 2012 , the Consumer Financial Protection Bureau (CFPB) announced 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 CFPB’s action was taken in coordination with the Office of the Comptroller of the Currency (OCC). The OCC’s order also includes separate restitution for additional consumers harmed by unfair billing practices taking place between May 2002 and June 2011. For the combined activity, the OCC is assessing a $35 million civil money penalty against Capital One.
- This action results 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.
- Capital One’s call-center vendors engaged in the following deceptive tactics to sell the company’s credit card add-on products. Consumers were:
- Misled about the benefits of the products;
- Deceived about the nature of the products;
- Misled about eligibility;
- Misinformed about cost of the products; and
- Enrolled without their consent.
To ensure that all affected consumers are repaid and that consumers are no longer subject to these misleading and high-pressure tactics, Capital One has agreed to:
- End deceptive marketing;
- Complete repayment, plus interest, to two million consumers;
- Pay claims denied based on ineligibility at enrollment;
- Convenient repayment for consumers;
- An independent audit; and
- Pay a $25 million penalty.
What the actions mean to you?
Maybe your bank is:
- Not regulated by the CFPB;
- Not a huge bank; or
- Not offering credit card products.
The message of these actions appears to apply to any financial institution offering add-on products in connection with any product. Maybe you offer:
- Credit life or accident and health insurance with some loan products.
- Lender single interest coverage in connection with loans secured by personal property; or
- Payment protection, credit score tracking, identity theft protection, or wallet protection in connection with one or more products.
If you offer add-on products review your marketing efforts to assure there is no lack of clarity about:
- The benefits of the products;
- The nature of the products;
- The eligibility requirements; and
- The cost of the products.
Also be sure on one is enrolled without their consent.