A Capital One Financial Corp. bank branch stands in the Brooklyn borough of New York City on Aug. 10, 2011.
The Consumer Financial Protection Bureau flexed its enforcement muscle for the first time today, fining Capital One Bank for deceptive credit-card marketing practices. The mega-bank has to pay $210 million in total, the vast majority of which is restitution — with interest — to roughly 2 million customers who were tricked or pressured into buying services like credit monitoring and payment protection.
The practice that got the credit card giant in trouble is the same one that got Discover Financial Services sued by the Minnesota attorney general a couple of years ago. Capital One was accused of fudging details or outright lying to customers to get them to sign up for expensive, low-value products like payment protection insurance and credit monitoring.
“Capital One will pay approximately $140 million to all of the estimated two million consumers who either initially enrolled in a product on or after August 1, 2010, or who tried to cancel a product on or after August 1, 2010, but were persuaded to keep the product after speaking with a call center representative,” the CFPB says in a statement issued today.
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This is significant for a few reasons: First of all, it’s the first time the fledgling agency has disciplined a financial services provider. The amount of money — while admittedly small for a company that spent roughly $11.5 billion buying card and banking operations from HSBC and ING within the past year or so — is no token slap-on-the-wrist.
Most of that penalty is going straight back to affected cardholders. The CFPB says that people who are still Capital One customers will get a credit to their account; those who have closed their cards will get a check in the mail.
The second reason this is big is because it shows the full reach of the CFPB’s authority to protect customers. In its statement, it says that the sneaky marketing tricks were discovered through supervisory and examination processes.
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This basically means that the CFPB doesn’t have to sit around and wait until enough burned customers call or write to complain to look into a matter. It has the authority to go to card issuers, credit bureaus and other financial services companies and ask them to provide information about their business practices so it can make sure they’re following the law.
In addition to the $140 million being returned to cardholders, Capital One has to pay $25 million to the CFPB’s Civil Penalty Fund. The Office of the Comptroller of the Currency, with which the CFPB partnered on this action, also has levied its own $35 million fine and sought an additional $10 million in restitution for customers hurt by these practices prior to the time frame of the CFPB’s enforcement.
The CFPB set up a short bulletin on its website so Capital One customers who think they might have been taken advantage of can get more details about the restitution. It also issued a compliance bulletin to warn other card issuers not to try these tricks. “The best time for all institutions to be reviewing and ensuring their practices in this area is right now,” director Richard Cordray said in a statement.