In the agreement announcement by regulators, Capital One promised to refund the full amount paid for payment protection and other add-on products sold using misleading tactics with its credit cards, plus interest, to about 2 million customers who initially enrolled for a service or unsuccessfully tried to cancel it on or after Aug. 1, 2010.
WASHINGTON — Federal banking regulators have ordered Capital One Bank to refund $150 million to about 2 million customers for deceptive marketing of payment protection and other add-on products sold with its credit cards.
Capital One also must pay $60 million in civil penalties for the practices. The refunds and fines, which the bank has agreed to pay under consent orders, were announced Wednesday by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.
“We are putting companies on notice that these deceptive practices are against the law and will not be tolerated,” Richard Cordray, director of the consumer bureau, said of the agency’s first major enforcement action since starting operations a year ago.
Bureau examiners found that Capital One’s call-center vendors “engaged in deceptive tactics” to persuade customers with low credit scores or credit limits to pay for add-on products when they activated their credit cards. Those products included payment protection if the customer was unemployed or temporarily disabled, and monitoring of their credit for identity theft and other problems.
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But Cordray said the 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.”
The bureau said that customers sometimes were misled into believing that the products would improve their credit scores and help them increase the credit limit on their Capital One credit card. Vendors working for Capital One also sometimes led customers to believe the products were free or were not optional purchases, and misled them about how the products worked, the bureau said.
In addition, customers sometimes were wrongly told they had to buy the product before they could be given full information about it but could always cancel the service, only to have difficulty canceling later.
Capital One said third-party vendors it hired “did not always adhere to company sales scripts and sales policies for payment protection and credit-monitoring products, and the bank did not adequately monitor their activities.”
“We are accountable for the actions that vendors take on our behalf,” said Ryan Schneider, president of Capital One’s credit-card business. “These marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold. We apologize to those customers who were impacted and we are committed to making it right.”
Capital One said that when it first learned of the problems in late 2011 it immediately stopped phone sales of the add-on products and began trying to identify customers for refunds.
In the agreement announcement by regulators, Capital One promised to refund the full amount paid for the product, plus interest, to about 2 million customers who initially enrolled for a service or unsuccessfully tried to cancel it on or after Aug. 1, 2010. Capital One also agreed to refund finance charges and other fees associated with the products.
The order from the consumer bureau requires Capital One to pay $140 million for the refunds. The order from the Office of the Comptroller of the Currency, which also regulates Capital One Bank, requires the bank to pay an additional $10 million to customers harmed by unfair billing practices from May 2002 to June 2011.
Both agencies assessed civil fines on Capital One. The consumer bureau fined the bank $25 million and the OCC fined it $35 million.