The CFPB's First Public Enforcement Action: A $210 Million Settlement with Capital One

Just in time for the agency's one-year anniversary this week, the CFPB today announced its first public enforcement action -- a major settlement with Capital One over charges of deceptive marketing of credit card "add-on" products, such as payment protection and credit monitoring.  Under the settlement, Capitol One will provide between $140 million and $150 million in restitution to 2 million customers and pay an additional $60 million in penalties -- $25 million to the the CFPB and $35 million to the OCC.

One interesting aspect of today's settlement is that it is the result of close cooperation between the CFPB and the OCC, two agencies that many observers presume to have diamtrically opposed philosophies on consumer financial regulation. Today's news demostrates that the reality is different and more complex. Given the banking agencies' experience with credit-card investigations and the CFPB's enhanced statutory enforcement authority, we can expect to see more interagency activity in this area.  Readers should also keep in mind that public enforcement actions like today's settlement are only the tip of the iceberg when it comes to enforcement activity--the culmination of investigations and negotiations behind closed doors.

“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.”

The agency's press release indicates that CFPB examiners discovered that Capital One’s call-center vendors engaged in deceptive tactics to sell the company’s credit card add-on products, including payment protection and credit monitoring services.  Consumers with low credit scores or low credit limits were offered these products by Capital One’s call-center vendors when they called to have their new credit cards activated. 

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: Capital One has ceased all marketing of these products, and will not resume doing so until Capital One submits a compliance plan, acceptable to the Bureau, which helps ensure these unlawful acts do not occur in the future.

• Complete repayment, plus interest, to two million consumers: 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. In addition to the amount paid for the product, cardmembers will receive a refund of the associated finance charges, any over-the-limit fees resulting from the charge for the product, and interest.

• Pay claims denied based on ineligibility at enrollment: For any of these eligible consumers whose payment protection claims were previously denied because their loss occurred prior to enrollment (because of unemployment, disability, etc.), Capital One will pay their claims as if they had been eligible, if that amount is greater than the refund for that consumer.

• Convenient repayment for consumers: If the consumers are still Capital One customers, they will receive a credit to their accounts. If they are no longer a Capital One credit card holder, they will receive a check in the mail. Consumers are not required to take any action to receive their credit or check.

• Independent audit: Compliance with the terms of the agreement will be assured through the work of an independent auditor, who will determine if Capital One has complied with the CFPB’s Consent Order.

• $25 million penalty: Capital One will make a $25 million penalty payment to the CFPB’s Civil Penalty Fund.

To further protect consumers, the Bureau is issuing 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. 

Comments

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Response to CRB: there is nothing inherently wrong with warning a prospective defendant of an intent to sue. Sometimes people are able to work out their differences short of litigation. The problem here is that the threatened lawsuit was baseless.

In fact, in some legal regimes the parties are required to try processes short of litigation. For example, in the labor area where I used to practice actively, a union member often has to exhaust intra-union remedies before bringing a union democracy claim to court. Representing union reformers, I was often able use that process effectively to get the union's own lawyers to read their client the riot act and get them to conform to the law.