CFPB Action Against Capital One Bank Sets Tone for Aggressive Enforcement

Earlier this month, the Consumer Financial Protection Bureau (CFPB) – the federal watchdog agency mandated by the Dodd-Frank Act to regulate consumer financial products and services – issued its first ever public enforcement action.

Its target? Capital One Bank, which according to the CFPB engaged in deceptive marketing practices, pressuring consumers into purchasing credit card “add-on” products, such as debt protection, identity theft protection, credit score tracking, and other products.

As a result of the enforcement action, Capital One agreed to a consent order (while neither admitting nor denying the allegations) that includes both significant fines and important restrictions on future business activity.

In connection with the enforcement action, the CFPB also issued a bulletin containing general guidance on marketing add-on products.

For your reference, five takeaways from the enforcement action and accompanying compliance bulletin:

1. Deceptive marketing tactics are costly:

“The consent order [with Capital One] provides for refunds to two million consumers of at least $140 million and a $25 million penalty. The consent decree also places additional restrictions and oversight on Capital One, including a requirement that it stop the marketing of these products until it has presented an acceptable compliance plan to ensure these acts do not recur. Capital One must also submit to an independent audit to determine if it has met the conditions of the consent decree, and it must ensure the refunds are automatic so that consumers do not have to take any action to obtain their refunds.” (CFPB’s First Case: Consent Order Against Capital One for Deceptive Marketing by Ifrah Law)

2. Other banks will likely face similar allegations:

“In a fact sheet also released on July 18, the CFPB advised that its Compliance Bulletin ‘warns other financial institutions the CFPB will not tolerate deceptive marketing practices,’ and notes that ‘[t]he Bureau’s Consumer Response Office has received complaints about other credit card add-on products, which the Bureau will monitor.’” (CFPB and OCC Take Coordinated Action Related to Sale of Credit Card “Add-On Products” by King & Spalding)

3. Employee compensation practices are under scrutiny:

“The CFPB indicated that institutions should, among other things: ensure that marketing materials and scripts will be accurate and not misleading; and that incentive compensation programs tied to the sale of add-on products do not create incentives for employees to provide inaccurate information to customers.” (U.S. Consumer Financial Protection Bureau Couples First Enforcement Action With Warning to Financial Services Industry by Dechert LLP)

4. Financial institutions must have comprehensive compliance programs:

“Compliance management programs should include written policies and procedures to ensure compliance with applicable federal and state laws and regulations, periodic quality assurance reviews, independent audits, oversight of affiliate or third-party service providers, a system for handling complaints, and an employee training program.” (CFPB Issues Guidance on Marketing Credit Card Add-On Products by Ballard Spahr LLP)

5. The agency is particularly concerned with disclosures:

“The Bulletin’s discussion of deceptive practices provides insight into how the CFPB will evaluate the effectiveness of disclosures, including disclosures related to add-on products. Specifically, the CFPB indicates that it will consider:

  • Whether disclosure statements are prominent enough for a consumer to notice them;
  • Whether disclosure information is presented in an easy-to-understand format that does not contradict other information in the package and at a time when the consumer’s attention is not distracted elsewhere;
  • Whether the disclosure information is in a location where consumers can be expected to look; and
  • Whether the disclosure information is in close proximity to the claim it qualifies.
    (CFPB Issues Compliance Bulletin on Marketing of Add-on Products by Morrison & Foerster LLP)

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