Capital One Required to Pay $140 Million in Consumer Refunds

19 July 2012 Consumer Class Defense Counsel Blog

Today, the Consumer Financial Protection Bureau (“CFPB”) engaged in its first major enforcement action by requiring Capital One to refund 2 million consumers approximately $140 million for profits gained from deceptive marketing practices related to its credit card protection services. The settlement was reached following an investigation, prompted by a March 2011 Government Accountability report on the high costs of credit card protection services, and numerous consumer complaints about Capital One’s credit card add-on products. The add-ons consisted of certain payment protection and credit monitoring products. The consent order not only required the $140 million refund, but also fined Capital One with a $25 million civil penalty and required it to take a variety of remedial measures, including developing a compliance plan before reengaging in these programs.

The CFPB reports that the deceptive practices targeted customers with low credit scores and used five primary means of coaxing them into buying the add-on products. These five practices were:

  • Misleading customers telling them that the products would increase their credit score and their credit limit.
  • Selling the products to ineligible individuals who were unemployed and disabled.
  • Falsely reporting that enrollment was a requirement to obtain a credit card or that in order to gain full information about the program they would have to enroll with the option of canceling later.
  • Falsely reporting that the products were free of charge, when in actuality they were being charge monthly fees.
  • Enrolling customers without their consent.

Under the terms of the consent order, Capital One must cease marketing these products until its compliance program is approved. They also were required to pay the payment protection claims for all the costumers who’s claims were denied based on eligibility. Lastly, Capital One had to establish a simple mechanism for customers to receive the refunds, either through immediate credits to current customers’ accounts or through checks for those who no longer hold a Capital One account.

The decision by the CFPB is illustrative of the strong stance it is taking against deceptive marketing tactics. Moreover, the CFPB is using its first enforcement action to show that it fully intends to use all its authority under Dodd-Frank; indeed, it used all three of its statutory  powers. In addition to issuing the consent order, the CFPB is also sending out two consumer advisories, one for Capital One costumers and one for the general public, and a CFPB bulletin for the banking industry. As Richard Cordray, CFPB director, stated, “[w]e are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”

The CFPB efforts were done in conjunction with the Office of the Comptroller of the Currency (“OCC”), which is also ordering restitution of approximately $150 million from Capital One. The OCC also issued a civil penalty of $35 million dollars. This first action is significant both because the civil penalties were very high given the amount at issue (encompassing 43% of the actual total restitution) and the CFPB reports that it will be taking similar actions in the future.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services

Insights

Text Messages, EDiscovery, and the New Threat to Privacy
21 November 2019
CMS Proposes Enhanced Scrutiny over Medicaid Supplemental Payments
20 November 2019
Health Care Law Today
The Purpose of a Corporation
November 2019
Legal News: Business Law
Should This Be a "Mobility" Industry Blog?
19 November 2019
Dashboard Insights
PATH Summit 2019
18-20 December 2019
Arlington, VA
Madison CLE Days
18-19 December 2019
Madison, WI
MedTech Impact Expo & Conference
13-15 December 2019
Las Vegas, NV
HFMA MA-RI Annual Compliance Update
12 December 2019
Boston, MA