[author: Lauren A. Champaign]

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 similiar actions in the future.