OCC, CFPB Charge Bank With Illegal Credit Card Practices

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

Two regulators have forced one bank to pay $35 million for allegedly improper credit card practices—including fines owed to both the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB).

What happened

Regulators allege that, from 1997 to 2012, First National Bank of Omaha engaged in unfair billing practices, while relying on deceptive enrollment practices between 2010 and 2012 to encourage customers to enroll in add-on products such as the “Secure Credit” and “Payment Protection” debt cancellation products and “Privacy Guard” and “IdentitySecure” credit monitoring products. A 2012 examination supposedly revealed the illegal activities.

The bank allegedly disguised that it was selling consumers a product by having consumers listen to a sales pitch for the add-on products while their credit cards were ostensibly “activating.” However, the activation process was almost instantaneous, the Bureau alleged, and there was no need for customers to remain on the phone with the bank.

In other instances, regulators say that customers were purportedly duped into purchasing the products when the bank confirmed enrollment by requesting other information (such as the customer’s city of birth) and not explicitly asking whether the customer wanted to purchase the product. Some consumers did not realize a purchase occurred because First National implied they were updating their accounts, receiving a benefit, or simply agreeing to receive more information about the product, the CFPB alleged.

The bank’s marketing likely allegedly neglected to disclose the eligibility for certain products, encouraging customers to make a purchase even where they would be ineligible. For example, customers were apparently pitched debt cancellation products even when they had disclosed information suggesting they could not receive the benefits because they were retired or self-employed, the Bureau alleged.

Consumers who did purchase the debt cancellation product were sometimes hindered in obtaining their benefits by the bank, according to the CFPB, as First National allegedly took a hard line on eligibility requirements by blocking coverage for consumers with preexisting health conditions, which included conditions appearing within six months after enrollment. The Bureau claims that the bank made cancellation of the products difficult, rewarding its customer sales representatives when they were able to talk a customer out of an attempt to cancel.

As for the bank’s billing practices, the regulators said First National billed customers for credit monitoring services that were not provided.

To settle the allegations that the bank engaged in unfair and deceptive practices in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the consent order with the CFPB requires the bank to provide approximately $27.75 million in refunds and other fees (including associated over-limit fees, overdraft fees, and finance charges) to an estimated 257,000 customers.

First National also agreed to change its practices with regard to add-on products, putting an end to deceptive marketing and billing customers if they don’t receive the promised benefits.

The bank will pay a $4.5 million penalty to the CFPB and an additional $3 million fine to the OCC for running afoul of Section 5 of the Federal Trade Commission Act’s prohibition on unfair or deceptive acts or practices.

To read the CFPB’s consent order in In the Matter of First National Bank of Omaha, click here.

To read the OCC’s consent order, click here.

Why it matters

Although the financial industry continues to wind down its ancillary products operations, credit card add-on practices remain top of mind for the CFPB, which noted that the action against First National Bank of Omaha was its twelfth overall and eighth taken in coordination with another regulator on the issue. “First National Bank of Omaha violated the trust of its customers by illegally signing them up for credit card add-on products,” CFPB Director Richard Cordray said in a statement about the action. “The CFPB’s track record, and this result today, shows strong and consistent action against credit card companies that dupe consumers into buying a product they do not want.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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