Capital One Financial Corp. has to pay $210 million as settlement for its deceptive marketing of credit card add-on products such as payment protection and credit monitoring. This has been the first public enforcement case file by the Consumer Financial Protection Bureau, which is established by the Dodd-Frank Act to increase supervision over consumer financial products.
The bureau as well as the Office of the Comptroller of the Currency, the bank’s primary regulator, said that Capital One agreed to pay between $140 million and $150 million as part of the settlement to two million customers. It also has to pay an additional $60 million in penalties to the federal agencies. $35 million goes to the OCC and $25 million to the bureau.
Capital One hasn’t denied or admitted any wrongdoing. According to bureau director Richard Cordray, the action against Capital One places $140 million back in the pockets of the company’s customers who were misled into buying credit card products that they didn’t want, didn’t understand, or couldn’t even use. This also serves as a warning to companies. He added that the bureau will not tolerate any deceptive practices.
During a conference call with reporters, Cordray said that other card issuers with similar products will also face enforcement actions. He added that the deceptive marketing tactics for credit card add-on products are not unique to Capital One. The bureau has ongoing probes on other institutions.
Capital One agreed not to market the add-on products as part of its settlement. The bureau’s examiners found out that the company’s third party vendors use deceptive methods to sell add-ons to the company’s credit cards.
The products that don’t comply with the bureau’s standards include payment protection that allows customers to cancel a maximum of 12 months of minimum payments if they get temporary disability or face unemployment.