Since it was formed a year ago in July 2011, the Consumer Financial Protection Bureau (CFPB) has issued the first violation to Capital One. This bureau’s purpose is to protect consumers against unfair, deceptive, or abusive practices in consumer financial products and services.
Capital One agreed to the consent order, which means that they didn’t admit or deny the allegation. The consent order requires Capital One to pay approximately $210 million – $150 million to over two million consumers and a $60 million penalty. Of the $60 million, $25 million goes into the Civil Penalty Fund, which was created under the Dodd-Frank financial reform law as a reserve to reimburse victims and for consumer education and financial literacy programs.
Consumers will be reimbursed by check or a credit to their account for the amount they spent for “add-on” products. In addition, Capital One has to stop marketing these products, until it has provided an acceptable plan to ensure that this won’t recur, and that refunds will be automatic.
These consumers were misled or pressured by Capital One’s telemarketing vendors into buying “add-on” products such as payment protection and credit monitoring, when they activated their credit card. Regulations prohibit call-center vendors from engaging in deceptive practices to sell credit card add-on products. Some of the practices included: enrolling them without their consent; telling them the products were free, but weren’t; misleading them about product benefits, such as claiming it improve their credit scores; telling them they could cancel, but cancelling was a very difficult process; and some were offered products for which they weren’t eligible and were later turned down.
Since the Consumer Financial Protection Bureau took action against one of the largest credit card issuers, it could also go after others. This is good news for consumers. The agency needs to protect consumers and is taking the first steps.
Hopefully, as a result of this action, fewer credit card companies will attempt to sell you other services when you activate the card. Keep in mind, that credit protection and monitoring services are not considered “good deals” by the Consumer Financial Protection Bureau and other agencies. If you want to avoid the sales pitches then activate your card online.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.