Watchdog orders Capital One to repay millions of customers

The Obama administration’s consumer watchdog agency flexed its enforcement muscles for the first time Wednesday and ordered Capital One Bank to repay millions of credit card customers allegedly tricked into buying costly add-on services.

Capital One will pay $210 million in refunds and regulatory fines. Most of the money will go directly to customers.
The bank’s phone-sales operators told customers that services like payment protection and credit monitoring were free or mandatory or offered more benefits than they did, federal officials said.

The hard selling targeted people with poor credit, they said.

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

Capital One will pay up to $150 million to 2.5 million customers, $25 million to the CFPB and $35 million to the Office of the Comptroller of the Currency, a separate federal agency that oversees its banking operations.

“Consumers deserve to be treated fairly by their credit card issuer,” CFPB Director Richard Cordray told reporters.

He said the problems are not isolated at Capital One and said he expects announcements about other companies.

CFPB officials observed heavy-handed sales tactics by workers at Capital One call centers as they monitored the bank’s operations, the agency said in its order.

Agency officials reviewed records and phone scripts, interviewed managers and listened to taped calls with customers, the agency said. The CFPB can oversee the biggest banks and certain other companies by stationing employees at their offices.

Customers were transferred to the call centers when they phoned to activate their credit cards, the order said. For most customers, that meant a two-minute process without any ads for extra products. But people with subprime cards or lower credit limits endured eight-minute pitches by live operators while they were waiting for the card to be activated.

Call center operators often ignored scripts and instructions provided by Capital One, the CFPB’s order said. Capital One is being held responsible because of “ineffective oversight,” it said.

Comptroller of the Currency Thomas Curry, who heads the OCC, said banks’ management of outside vendors is “an area we have identified as an increasingly significant risk,” especially for big banks.

Call center operators told customers that buying a product would improve their credit scores or credit limits, the CFPB said. Operators misled callers about the products’ costs and sold them to people who were not eligible for their benefits, the agency said.