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Capital One

The Consumer Financial Protection Bureau struck Capital One hard this week. The consumer protection agency has found that the credit card company improperly marketed add-on products to its customers. Because of this behavior, Capital One has agreed to pay refunds to 2.5 million customers totaling about $150 million, in addition to a $25 million penalty to the CFPB and a $35 million penalty to a regulator, the Office of the Comptroller of the Currency.

Capital One customers with low credit scores and bad credit were targets of sales pitches for products like “Privacy Guard” and “Payment Protection.” Capital One has stated these products are sold by a third-party vendor, but the issuer failed to monitor the company’s sales activities. Many customers found themselves enrolled in these programs without knowing they signed up for them, and in many cases, customers were not told that these services were optional. Even with the misleading sales tactics, the products are generally ineffective at worst, overpriced at best.

When a new credit card user calls to activate their card, once that process is done, the customer is transferred to a sales team. The process of activating a card is, for the most part, just a way to get customers to listen to a sales pitch. Activating a card, if necessary in the first place, could be done with an automated system or online; there’s no technological need to talk to a company representative. Issuers keep this activation process because it allows them to pitch unnecessary add-ons, just as Capital One has been accused of doing.

The Consumer Financial Protection Bureau explained exactly how customers were misled, to alleviate any thought that customers were given enough information on these calls to make an informed decision about their enrollment:

As part of the high-pressure tactics Capital One representatives used to sell these add-on products, consumers were:

  • Misled about the benefits of the products: Consumers were sometimes led to believe that the product would improve their credit scores and help them increase the credit limit on their Capital One credit card.
  • Deceived about the nature of the products: Consumers were not always told that buying the products was optional. In other cases, consumers were wrongly told they were required to purchase the product in order to receive full information about it, but that they could cancel the product if they were not satisfied. Many of these consumers later had difficulty canceling when they called to do so.
  • Misled about eligibility: Although most of the payment protection benefits kicked in when consumers became disabled or lost a job, some call center representatives marketed and sold the product to ineligible unemployed and disabled consumers. Despite paying the full fees, they could not get all the benefits of payment protection; some later filed claims that were denied because their “loss” (e.g. loss of job or onset of disability) occurred prior to enrollment.
  • Misinformed about cost of the products: Consumers were sometimes led to believe that they would be enrolling in a free product rather than making a purchase.
  • Enrolled without their consent: Some call center vendors processed the add-on product purchases without the consumer’s consent. Consumers were then automatically billed for the product and often had trouble cancelling the product when they called to do so.

The above affects 2 million of the 2.5 million customers due refunds. The remaining approximately 500,000 customers to receive refunds come from a separate order from the OCC, in which the regular targets unfair billing practices from May 2002 through June 2011. In this respect, Capital One was in violation of Section 5 of the Federal Trade Commission (FTC) Act (unfair or deceptive acts or practices).

Customers within the group of 2.5 million due refunds do not need to take any action if their Capital One accounts are still open. The refund will be credited to the accounts in which the cost of these products were charged. For the customers who have closed their accounts, the refunds will be sent via check to the account’s last known address.

Did you ever sign up for these products offered by Capital One? Did you have trouble canceling? Were you enrolled without your knowledge? Has any other issuer ever tried to sell you products when activating your card? If you have any stories to share about deceptive practices like these, please share by leaving your story below.

American Banker,, Consumer Financial Protection Bureau


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