July 19, 2012
The Obama administration’s consumer watchdog agency flexed its enforcement muscles for the first time Wednesday and ordered Capital One Bank to repay millions of credit-card customers allegedly tricked into buying costly add-on services. Capital One will pay $210 million in refunds and regulatory fines. Most of the money will go directly to customers.
The bank’s phone-sales operators told customers that certain services—such as payment protection and credit monitoring—were free, mandatory or offered more benefits than they did, federal officials said. The hard selling targeted people with poor credit, they said.
The order against Capital One is the first enforcement action by the Consumer Financial Protection Bureau (CFPB), which was set up a year ago to protect consumers from excessive or hidden fees and other financial threats.
Capital One will pay up to $150 million to 2.5 million customers, $25 million to the CFPB and $35 million to the Office of the Comptroller of the Currency (OCC), a separate federal agency that oversees its banking operations.
“Consumers deserve to be treated fairly by their credit-card issuer,” CFPB director Richard Cordray said. He said he expects announcements about other companies.
CFPB officials observed heavy-handed sales tactics by workers at Capital One call centers as they monitored the bank’s operations, the agency said in its order, adding that agency officials reviewed records and phone scripts, interviewed managers and listened to taped calls with customers.
Comptroller of the Currency Thomas Curry, who heads the OCC, said banks’ management of outside vendors is “an area we have identified as an increasingly significant risk,” especially for big banks.
Call-center operators told customers that buying a product would improve their credit scores or credit limits, the CFPB said. Operators misled callers about the products’ costs and sold them to people who were not eligible for their benefits, the agency said.
For example, operators sold payment protection that would cancel some credit-card debt if the customer became sick or unemployed. But the buyers sometimes were already sick or jobless, so they could never collect on a claim.
Banks are pushing the extra services as they scramble to replace profits lost because of recent limits on fees they can charge and how cards can be marketed. Industry officials argue the limits are encouraging banks to come up with increasingly difficult-to-detect ways of charging customers.
Banks and consumer groups have been locked in a public battle about how the young agency could use its power. Wednesday’s action provided the first clear clues about its plans.
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