The Consumer Financial Protection Bureau has issued its first regulatory action against Capital One bank for sales practices related to its credit card unit. Sales of payment protection insurance products by third parties engaged by Capital One were at the heart of the matter.
From The New York Times:
The regulatory actions, totaling $210 million including fines to authorities, take aim at one of the financial industry’s growing profit centers and increasingly controversial practices. Several other banks, including Bank of America, JPMorgan Chase and HSBC, were sued in June by the Hawaii attorney general, accused of improperly selling similar so-called add-on products, which consumer advocates typically regard as costly and ineffective.
“We know these deceptive marketing tactics for credit card add-on products are not unique to a single institution,” said Richard Cordray, the director of the consumer bureau. “We expect announcements about other institutions as our ongoing work continues to unfold.”
In addition to the fines, Capital One must stop selling the products and must reimburse affected cardholders.
Under the deal with regulators, Capital One must temporarily halt the marketing of certain add-on products and submit to an independent audit. The bank said it thought the refunds, which victims are to begin receiving later this year, would average less than $100 a person.
The deceptive sales practices used to sell the products were detailed in the order.
In a 30-page order, the consumer bureau outlined how call centers for the bank marketed and sold the products to ineligible unemployed consumers and forced the products without the consumer’s consent. In other cases, according to the bureau, the bank employed “high pressure tactics,” including misleading customers into thinking the product was free, mandatory and would bolster credit scores.
Perhaps no coincidence, these sales programs were delivered by a third-party vendor engaged by Capital One. Regulators have recently focused on the importance of financial institutions monitoring the practices of their subcontractors. Capital One acknowledged its ultimate responsibility for the actions of the vendor in question.
Click here to read more from The New York Times.