Editorial Policy

Capital One Slapped With $210 million Penalty for Deceptive Marketing

Kristin McGrath

July 18, 2012

Capital One has long been criticized for the way it’s dealt with subprime borrowers. Now, it’s going to have to pay — big-time. The bank reached an agreement Wednesday with two government watchdog groups that will cost it  $210 million.

The agreement stems from coordinated investigations by the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) into Capital One’s marketing practices. Capital One’s transgressions, according to a CFPB fact sheet, involve deceptive marketing of products consumers can add on to their credit card accounts — such as credit monitoring and payment protection (a type of insurance that allows customers to forgo minimum payments if they lose their jobs or become disabled).

The problem was that the customers, especially those with poor credit, 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 in a statement.

The punishments are steep: Capital One must pay $140 million to the customers it misled into buying payment protection, an additional $10 million to those who bought unnecessary credit monitoring services, $25 million to the CFPB and $35 million to the OCC.

It must also submit to an independent audit and stop marketing payment protection and credit monitoring products until it submits a proposal for future marketing, which the CFPB must approve.

What did Capital One do?
When customers with low credit scores and low credit limits called Capital One to activate their new credit cards, according to the CFPB, they were routed to a third-party call center to be sold payment protection and credit monitoring services.

The CFPB said the sales tactics included:

  • Telling consumers that purchasing extra products would improve their credit scores or put them in the running for higher credit limits.
  • Neglecting to tell customers that the add-ons were optional.
  • Failing to warn customers that they might not even be eligible for payment protection. For example, if you were unemployed, you were ineligible — protection applied only to some future bout of joblessness. Yet sales representatives sold them the product anyway. When those customers attempted to use their payment protection coverage, their claims were denied.
  • Not disclosing the cost of extra services, leaving customers with the impression that they were free. In some cases, customers were enrolled in services without giving their consent and then encountered difficulty when trying to cancel them.

According to a statement from Capital One, the bank learned of what its third-party call center representatives were doing in late 2011, and immediately took action.

“We are accountable for the actions that vendors take on our behalf,” said Ryan Schneider, president of Capital One’s card division.  “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.”

Who is eligible for a refund?
How can Capital One customers lay claim to a piece of the $150 million in refunds? Those who are still Capital One customers will receive account credits, while those who are not will receive checks. The roughly 2 million customers eligible for a refund include:

  • Those who were sold an add-on product after Aug. 1, 2010, and those who tried to cancel a product but were convinced to keep it after talking with a call center representative. In addition to getting a refund for the cost of the product, these customers can also expect refunds for any over-limit fees resulting from the purchase of the product, as well as finance charges and interest.
  • Those whose payment protection claims were denied because they were unemployed or disabled at the time of enrollment. These customers will receive a refund for the cost of buying payment protection — or will have their claims paid, if that amount is greater.

It’s up to Capital One to identify the customers it owes money. If you think you qualify for a refund, but are not contacted, get in touch with Capital One first. If it doesn’t resolve your case, contact either the OCC or the CFPB via their websites.