Financial services giant Capital One Bank will pay $210 million in fines and restitution to settle claims that it engaged in deceptive credit card practices, the first enforcement action taken by the Consumer Financial Protection Bureau.
The Washington Postreports that the McLean, Virginia-based bank must reimburse customers who were bamboozled into purchasing credit monitoring and other add-on services.
A third-party vendor hired by Capital One targeted the unemployed and people with bad credit, with call center agents lying to them and telling them that such services were either free or mandatory. Some customers were told that enrolling in the services would bolster their flagging credit scores or even provide debt forgiveness in the event of illness. Some were even enrolled without their consent, then automatically billed for the services. Many reported difficulties when attempting to cancel the services.
This is the first case that the Consumer Financial Protection Bureau (CFPB), a federal agency created in 2011 as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, has thoroughly investigated. Set up by Senate candidate Elizabeth Warren, who was passed over for directorship of the agency, the CFPB aims to "promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services."
Republican lawmakers, who decry what they view as excessive government regulation, have vehemently opposed Dodd-Frank and have led efforts to shut down the CFPB. But the two-year-old agency is stronger than ever, as shown by the massive fine levied on Capital One.
"We are putting companies on notice that these deceptive practices are against the law and will not be tolerated," CFPB director Richard Cordray said in a statement. "Capital One customers were pressured or misled into buying credit card products they didn't understand, didn't want, or in some cases, couldn't even use."
Ryan Schneider, president of Capital One's credit card division, took responsibility for the deceptive practices. "We are accountable for the actions that vendors took on our behalf," he said in a statement. "These marketing calls were inconsistent with the explicit instructions we provided for agents for how these products should be sold. We apologize to those customers who were impacted and we are committed to making it right."
The company will pay $25 million to the CFPB, as well as $35 million to the Office of the Comptroller of the Currency. An additional $150 million will be reimbursed to around 2.5 million customers who purchased credit services from the bank between August 2010 and January 2012. The refunds will begin going out later this year; the average payout will likely be less than $100.
Capital One has run afoul of regulators before. In 2010, the company agreed to pay $775,000 for charging bogus fees to customers closing credit card accounts.
It's been a busy month in the world of financial crimes. Weeks ago, London-based banking giant Barclay's agreed to pay $453 million to US and UK regulators over claims it manipulated the London interbank offered rate (Libor), a crucial global lending rate.
Earlier this week, Senate lawmakers issued a report slamming British banking giant HSBC for failing to monitor money laundering by Mexican drug cartels.
Also this week, Visa, Mastercard and other banks that issue credit cards agreed to pay $7.25 billion to settle allegations of credit and debit card fee fixing in what many observers are calling the largest antitrust settlement in US history.
Capital One stock closed down 1.7 percent at $54.89 per share on Wednesday. The company also announced on Wednesday that its earnings for the second quarter were down 90 percent from one year ago.