Consumer bureau dishes first penalties, hits Capital One for ‘deceptive’ practices

The Consumer Financial Protection Bureau (CFPB) is ordering Capital One to pay $165 million for engaging in "deceptive marketing practices" as it marketed credit cards.

The joint enforcement action by the bureau, in conjunction with the Office of the Comptroller of the Currency (OCC), marks the first time the new bureau has flexed its enforcement muscle since opening its doors roughly a year ago.

“Today’s action puts $140 million back in the pockets of 2 million Capital One customers who were pressured or misled into buying credit card products they didn’t understand, didn’t want or, in some cases, couldn’t even use,” said CFPB Director Richard Cordray. “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”

Under the penalty, Capital One will pay a $25 million fine, as well as another $140 million to 2 million customers who signed up for credit cards while the lender was engaged in marketing services to customers without fully explaining the terms. The OCC also is demanding that an additional $10 million from Capital One be paid out to consumers harmed by unfair billing practices. The OCC is also assessing an additional $35 million penalty.

The move, which comes just days before the one-year anniversary of the CFPB opening its doors, marks a significant new step for the creation of the Dodd-Frank financial reform law. Previously, the bureau had drafted rules, initiated investigations and collected data on consumer financial products, but Wednesday's move marks the first time the bureau has actually levied penalties for practices it deems harmful to consumers.

In particular, the CFPB is punishing Capital One for marketing add-on products to credit cards, such as payment protection and credit monitoring. The bureau said the company's call centers marketed the products to consumers with low credit scores or limits using "high-pressure tactics." 

Company representatives misled consumers about the benefits of the products, did not always depict them as optional or marketed them to customers who were unable to utilize the benefits. Some call-center vendors even enrolled consumers in add-on products without their consent, or led them to believe the products did not carry added costs.

In a statement, Capital One said third-party vendors did not always follow company scripts when marketing cards, and the bank failed to adequately monitor them.

"We are accountable for the actions that vendors take on our behalf," said Ryan Schneider, president of the bank's card lending 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 has agreed to end its marketing practices as part of the penalty, and will submit to an independent audit to ensure its policies are changed as demanded.

This story was updated at 12:04 p.m. to include a response from Capital One.