| NEW YORK, July 18
NEW YORK, July 18 The Capital One Financial
settlement with U.S. regulators over deceptive marketing
of credit card "add-on products" means a lot to all consumers,
not just Capital One customers, according to consumer advocates.
This is the first enforcement action by the Consumer Finance
Protection Bureau, which is about to hit its first anniversary.
Ed Mierzwinski, consumer program director of advocacy group U.S.
PIRG, says it's significant to the future of the agency that
this first move was against a big company over a pernicious
"This is a big event for a young agency," he said. "They
brought their first action against one of the biggest, most
politically active firms, and that will send a clear message
that violations of the law will not be tolerated."
Capital One agreed to pay $150 million to reimburse more
than 2 million customers who bought aggressively marketed
payment protection and credit monitoring services; customers
will get a credit on their accounts or a check in the mail.
What does the CFPB action mean for Capital One customers and
1. Stronger warnings for consumers about add-on services
The settlement should show consumers that they need to
beware of pitches they hear from credit card issuers, especially
when activating a card.
The CFPB says Capital One violated regulations that prohibit
call-center vendors from engaging in deceptive tactics to sell
the company's credit card add-on products, specifically payment
protection plans and credit-monitoring services.
First of all, Mierzwinski said, "Consumers should know that
credit protection and monitoring are the worst add-on products
you can buy."
Travis Plunkett, legislative director of the Consumer
Federation of America, is no kinder, referring to these services
as "junk products."
The CFPB also issued a warning to consumers on what to watch
out for with these products, primarily that you should be wary
of any pitch when you are activating a new credit card. ()
Ryan Schneider, president of Capital One's card business,
said, "We are accountable for the actions that vendors take on
our behalf. These marketing calls were inconsistent with the
explicit instructions we provided to agents for how these
products should be sold." ()
2. Customers will get no-hassle refunds.
Capital One is responsible, with oversight, for determining
who is entitled to refunds and will either credit current
accounts or mail out checks.
The CFPB emphasizes that ease for consumers is its main
concern: "It's been important to make sure that the refunds were
managed in a way that was convenient to consumers. Consumers are
not required to take any action."
The agency says customers will be reimbursed according to
how much they spent, and the settlement is just an estimate of
how much it will cost.
An additional $60 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.
3. Others might benefit directly, too.
"This settlement is not unique and I expect there to be more
activity," CFPB director Richard Cordray said at a press
conference on Wednesday.
Plunkett said the deceptive practices that got Capital One
in trouble are widespread in the industry. "This is a shot
across the bow of all companies selling junk financial products
and misleading consumers about them - that they better be more
careful. It has direct effect and a hugely significant effect on
the whole financial services industry," he said.
While Capital One is the only company currently not allowed
to market these add-on credit card products at all - they have
to get a plan approved by the CFPB before they can resume -
Mierzwinski expects other credit card issuers to stop selling
"It would be stupid to continue to market this kind of
product," he said.
But Brian Riley, who worked at JPMorgan Chase & Co,
Citigroup Inc and First Union/Wachovia (now Wells Fargo &
Co ) for many years and is now senior research director
for the CEB Tower Group, said such practices may be too
complicated to unravel because they are already baked into the
revenue models for the next three years.
"You can't just unplug it if you're a publicly traded
company," he said, adding that some banks may "self-confess" to
the CFPB and take their lumps.
4. Other shoes will drop.
Both the CFPB and the Office of the Comptroller of the
Currency (OCC), which partnered on the action against Capital
One, have web-based complaint systems where consumers can enter
information. The CFPB says it will follow up with any Capital
One customers who feel they didn't get a refund when they were
due one, and also for customers of other banks who feel they've
The CFPB is currently collecting consumer complaints on a
number of other topics and following up on them, including
student loans, other credit card complaints and credit report
While future enforcement actions are rarely telegraphed in
advance, Plunkett hopes that next on the agenda are mortgage
services abuses and payday lending practices. And he has high
hopes for what is to come.
"They probably have a lot of things they are investigating,
and it's a good sign that they didn't pick an obscure corner of
the marketplace to get started," he said.