The Consumer Financial Protection Bureau – the federal watchdog agency tasked with overseeing consumer financial products and services – celebrated its first birthday this month with a bang:
“[On July 18, 2012,] the Consumer Financial Protection Bureau (CFPB) announced its first public enforcement action with an order requiring Capital One Bank (U.S.A.), N.A. to refund approximately $140 million to two million customers and pay an additional $25 million penalty. This action results from a CFPB examination that identified deceptive marketing tactics used by Capital One’s vendors to pressure or mislead consumers into paying for ‘add-on products’ such as payment protection and credit monitoring when they activated their credit cards.
‘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.’” (CFPB Press Release)
But this enforcement action represents more than just a major victory for consumers. It’s also an important demonstration of the agency’s ability to identify – and prosecute – unfair banking practices.
What does the Capital One enforcement mean for credit card customers? Three takeaways:
1. Victims of deceptive practices at other banks could also get relief:
“In a fact sheet also released on July 18, the CFPB advised that its Compliance Bulletin ‘warns other financial institutions the CFPB will not tolerate deceptive marketing practices,’ and notes that ‘[t]he Bureau’s Consumer Response Office has received complaints about other credit card add-on products, which the Bureau will monitor.’” (CFPB and OCC Take Coordinated Action Related to Sale of Credit Card “Add-On Products” by King & Spalding)
2. Marketing materials will be easier to understand:
“The agency stressed certain proactive actions that companies should take to ensure that marketing materials and customer service interactions do not violate the law. Among these practices are the review of scripts, ads, radio and TV commercials to make sure they reflect the actual terms of the products and are not deceptive or misleading.” (CFPB’s First Case: Consent Order Against Capital One for Deceptive Marketing by Ifrah Law)
3. Consumers with poor credit will no longer be unfairly targeted:
“The CFPB alleged that its examination of Capital One led it to find that Capital One focused on credit card customers with low credit scores or low credit limits in marketing certain payment protection and credit monitoring services.” (U.S. Consumer Financial Protection Bureau Couples First Enforcement Action With Warning to Financial Services Industry by Dechert LLP)
• CFPB Issues Compliance Bulletin on Marketing of Add-on Products - Morrison & Foerster LLP
• CFPB Issues Guidance on Marketing Credit Card Add-On Products - Ballard Spahr LLP
• CFPB Announces First Public Enforcement Action; Issues Related Compliance Bulletin – BuckleySandler LLP
• Is the CFPB Using Its Enforcement Tool as De Facto Rulemaking? – Ballard Spahr LLP
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