Capital One to Pay $210M Settlement for Deceptive Marketing

Expect 'Steady Clip' of Actions from Consumer Bureau

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A year after the U.S. Consumer Financial Protection Bureau began operating as an independent agency, it brought its first enforcement case: a $210 million settlement with Capital One Financial Corp. for deceptive marketing.

The McLean, Virginia-based company didn't admit or deny wrongdoing.

"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, referring to the refund amount in the consumer bureau's settlement. "We are putting companies on notice that these deceptive practices are against the law and will not be tolerated."

Noting that other companies market similar products with similar tactics, he promised in the interview that enforcement actions would now come "at a fairly steady clip."

The CFPB said its examiners discovered that Capital One's third-party vendors engaged in deceptive tactics to sell ancillary products to the company's credit cards. The products included "payment protection" that allows customers to cancel as many as 12 months of minimum payments if they face unemployment or temporary disability.

The vendors also sold credit-monitoring services, which promised identity-theft protection and access to "credit education specialists," the CFPB said.

Mr. Cordray said that customers were wrongly led to believe they needed to buy the services to activate their cards or that debt protection or credit monitoring was free, while others were left with the impression that the purchase would improve their credit scores. Some customers were simply not eligible, but got billed anyway.

Capital One said in a statement that it became aware of its vendors' practices in late 2011.

"We are accountable for the actions that vendors take on our behalf," Ryan Schneider, president of Capital One's card business, said in the statement. "These marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold. We apologize to those customers who were impacted and we are committed to making it right."

More cases against credit-card companies may be in the works. The CFPB and Federal Deposit Insurance Corp. have subpoenaed Discover Financial Services amid a probe into that lender's marketing of fee-based products, including debt- protection, the company said in a June filing.

The consumer bureau may be the most visible creation of the Dodd-Frank Act, the overhaul of financial regulation that President Barack Obama signed into law two years ago. Much of the work mandated by the law remains incomplete, including regulations with wide impact on the banking industry such as the so-called Volcker rule banning proprietary trading.

During the past year the consumer agency went to work laying the groundwork for oversight of banking products and services. Beside its newly deployed enforcement powers, the bureau is poised to set rules for areas including mortgage servicing, mandatory arbitration and the billions of dollars in fees customers pay each year for overdrawing checking accounts.

Last July the agency began supervision of banks with over $10 billion in assets for compliance with federal consumer- protection laws. On Jan. 5, after Mr. Obama installed Mr. Cordray as the bureau's director, it began examining payday lenders, mortgage originators and servicers, as well as private student lenders.

~Bloomberg News

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