Capital One to Refund Customers $150 Million to End Card Probe

×
Capital One Alec Baldwin
WASHINGTON -- Capital One Bank (COF) will pay $210 million to settle federal charges that it tricked credit card customers into buying costly add-on services like payment protection and credit monitoring.

Most of the money will go directly to refund customers who were led to believe the services were free or mandatory or offered more benefits than they did, officials said Wednesday.

The order against Capital One is the first enforcement action by the Consumer Financial Protection Bureau, which was set up a year ago to protect consumers from excessive or hidden fees and other financial threats.

Under its agreement with the CFPB, Capital One will pay about $150 million to 2.5 million customers and an additional $25 million penalty. Capital One will pay a $35 million penalty to the Office of the Comptroller of the Currency, a separate federal agency that oversees its banking operations.

The refunds will go to customers who bought add-on card services between August 2010 and January 2012. They will receive the full amount of fees they paid and any other related costs.

CFPB officials said they observed heavy-handed tactics by Capital One call center workers as they monitored the bank's operations. The CFPB can oversee the biggest banks and certain other companies by stationing employees at their headquarters.

The charges hinge on the consumer bureau's allegation that Capital One's call-center vendors were "deceptive" in selling the add-on services. The CFPB can charge companies engaged in "unfair, deceptive or abusive practices."

Banks and consumer groups have been locked in a public battle about how the young agency would use that power. Wednesday's action provided the first clue to its plans. The CFPB held Capital One responsible for the behavior of a third-party vendor, a rare but not unheard-of decision by federal regulators.

The CFPB's action was also notable for requiring automatic refunds to consumers who were duped - a simple process compared with the mailings and paperwork involved in most class-action settlements.

The action solidifies the role of an agency whose very existence remains a subject of stiff debate on Capitol Hill.

Republicans wanted it to be run by a bipartisan commission instead of an independent director and wanted Congress to have power over the agency's budget. The agency's champions say the agency needed independence to avoid outside influence.

Republicans delayed some of the agency's powers by holding up the appointment of its director, former Ohio Attorney General Richard Cordray. President Barack Obama installed Cordray in January using a recess appointment that Republicans say was not valid.

In a statement Wednesday, Cordray said the agency is "putting companies on notice that these deceptive practices are against the law and will not be tolerated."

Capital One said the third-party vendor had violated its instructions. Still, Capitol One card division president Ryan Schneider apologized to customers in a statement, adding, "We are accountable for actions that vendors take on our behalf."

The consumer bureau, which was created under the Obama administration's financial overhaul law, is the first federal regulator focused on protecting consumers, rather than on ensuring that banks are stable and profitable.

Its officials referred the issue to the agency's enforcement division.

The $25 million penalty will go to the CFPB's civil penalty fund, which is used to refund victims of consumer abuse and pay for financial education programs.

Capital One settled the matter without admitting or denying the allegations described by its regulators. Stock of the parent company, Capital One Financial Corp., fell 51 cents to $55.32.




Increase your money and finance knowledge from home

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

Add a Comment

*0 / 3000 Character Maximum

50 Comments

Filter by:
Nick

vIt's amazing people still think having good or any credit is great. Sold hook line and sinker. Sure, what that nice house that you paid double maybe triple for then someone before with little to no change to the house, even if, not for the price added to the equity it put onto the bottom end. Free trade is wonderful unfortunately it has a severe price the other way as well. Like say having alot of money and great experiences but awful tragedies happing as well, what's the point. Then some sorry person thinking the same as you, buys for double, triple, whatever.So the story go's again. We just kick the can down the road expecting someone else to figure it out. The greatest trick the devil ever played was to convince everyone he didn't exist.

July 18 2012 at 9:43 PM Report abuse rate up rate down Reply
dkortasc

To hell with the credit reporting agencies, credit cards and the government. They make up the rules as they go along and only use the taxpayers for their money!

July 18 2012 at 8:57 PM Report abuse rate up rate down Reply
dkortasc

Capital One gives you a card for low interest rates or balance transfers ..........and then doubles them up. Excuse is Obama and the government. Do not work for the customer.

July 18 2012 at 8:54 PM Report abuse rate up rate down Reply
sobryan205

Get a card from your credit union, they won't screw you so bad.,

July 18 2012 at 7:28 PM Report abuse rate up rate down Reply
Kisniel

Capital one is a fraud big time. I am glad finally they came under the light and got caught.

July 18 2012 at 7:17 PM Report abuse +1 rate up rate down Reply
alderaforall

Capitol One card division president Ryan Schneider apologized to customers in a statement, adding, "We are accountable for actions that vendors take on our behalf."

And for those that can't read through B.S., the above statement translates to; "We are accountable only after our lawyers have exhausted every legal maneuver they could pull out of their rearends "

July 18 2012 at 6:58 PM Report abuse rate up rate down Reply
Alex

Additionally - be very careful after you pay off your cards. Your annual payment will be automatically charged without your knowledge. They leave us no choice but to cancel a card - which is credit suicide.

July 18 2012 at 6:43 PM Report abuse +1 rate up rate down Reply
1 reply to Alex's comment
alderaforall

you call canceling a credit card credit suicide and I call it financial freedom. Why do you think it's good to be in debt? The banks have you fooled. They can take that credit score and shove it up their greedy asses. Cash is King.

July 18 2012 at 7:06 PM Report abuse rate up rate down Reply
ridge10000

Hey, they took a shot.

Just another case of the wealthy stealing from the middle-class, and since the punishment is small compared to the lucrative possibility of the crime, I'm sure they'll try again with a different scheme soon. If the GGOP gets its way, all of their scheming will become legal.

July 18 2012 at 6:42 PM Report abuse +1 rate up rate down Reply
mebecarl

Good news. BETTER news would have been reading the obits of their CEOs.

July 18 2012 at 6:42 PM Report abuse rate up rate down Reply
Alex

Soooooo - what are we doing about the fact that Capital One owns Household Bank and Best Buy? HHSB? I've been pushed into so many "add-on" by fear mongering. Not to mention that HHB did NOT honor my payment freeze when I went on SSDI. They found some miniscule loophole to get out of it. As I told all three, separately, I'm paying off my bills and tossing the plastic. Capital One is a crook.

July 18 2012 at 6:41 PM Report abuse rate up rate down Reply
1 reply to Alex's comment
sobryan205

Same problem with HSBC Debt protection. Led to believe that it was there for unforeseen emergency. Shows up on the monthly bill and you think that by adding up all the minimum charges and including that fee/charge and paying that total amount, not the minimum monthly amount, that you are covering your butt. Not true says HSBC. It shows on your monthly bill but HSBC doesn't want you to pay that so HSBC doesn't pay it and it stays on your balance and you get charged interest on that amount. It never gets paid until you pay off your same as cash plan and you ask HSBC "why is there still a balance, when I've paid off my same as cash amount" ******* crooks!!!!

July 18 2012 at 7:26 PM Report abuse rate up rate down Reply