CFPB’s First Case: Consent Order Against Capital One for Deceptive Marketing

By: Michelle Cohen

The barely year-old Consumer Financial Protection Bureau came out of the gate this week with its first enforcement action. Capital One has the dubious honor of being CFPB’s premier target under the bureau’s authority to take action against entities that it believes engage in unfair, deceptive, or abusive practices in the offering of consumer financial products and services. Congress created the CFPB as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That law broadly empowers the CFPB to supervise and enforce the nation’s consumer financial laws.

The CFPB claimed that Capital One’s telemarketing vendors used certain deceptive marketing practices to pressure or mislead consumers into paying for “add-on” products such as payment protection and credit monitoring. The practices of particular concern to the CFPB included:

• Misleading consumers about the benefits of the products – for instance that the product would improve credit scores when that was inaccurate
• Deceiving consumers about the nature of the products – CFPB claims some consumers were told the products could be cancelled, while canceling was difficult to accomplish
• Taking orders from ineligible consumers and then denying claims later based upon eligibility
• Leading consumers to believe the products were free when they were not
• Enrolling consumers without the consumer’s express consent

Capital One agreed to a consent order, in which the bank neither admits nor denies the allegations. The consent order 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.

In addition to the consent order and the associated press release, the CFPB also issued a compliance bulletin stressing that institutions will be held liable for actions by third-party vendors operating on their behalf. The agency stressed certain proactive actions that companies should take to ensure that marketing materials and customer service interactions do not violate the law. Among these practices are the review of scripts, ads, radio and TV commercials to make sure they reflect the actual terms of the products and are not deceptive or misleading. The CFPB also cautioned that employee incentive and compensation programs tied to add-on products should require that employees adhere to guidelines and not create incentives for employees to provide inaccurate information.

Those familiar with FTC enforcement will note many similarities, as the CFPB has stated it will follow FTC precedent on “unfair” and “deceptive” practices. The CFPB has also made clear that service providers and others who “knowingly or recklessly provide substantial assistance to a covered person or service provider” may face the CFPB’s wrath.

While this is the first CFPB action, others are sure to follow as the CFPB is engaged in ongoing examinations and has issued subpoenas. The CFPB is also working closely with state attorneys general and the FTC, sharing information on potential violations and coordinating enforcement actions. We expect to see several additional CFPB actions as the new agency flexes its enforcement muscles, particularly in the mortgage, credit card, educational and “pay day” loan arenas.