Compliance Blog

Written by Michael Coleman, Regulatory Compliance Counsel

Earlier this week, the FDIC and the CFPB announced a joint public enforcement action ordering Discover Bank (“Discover”) to pay $200 million to more than 3.5 million consumers as a result of deceptive marketing. The order also required Discover to pay $14 million in civil money penalties. Discover will pay $7 million of the penalty to the U.S. Treasury and $7 million to the CFPB’s Civil Penalty Fund. The CFPB’s press release also contains a fact sheet regarding the consent order.

 The CFPB’s press release states that Discover used deceptive telemarketing and sales tactics to “mislead consumers into paying for various credit card “add-on products” – payment protection, credit score tracking, identity theft protection, and wallet protection.” The CFPB states in the press release that as a result of these deceptive tactics consumers were:

• Misled about the fact that there was a charge for the products

• Misled about whether they had purchased the products

• Enrolled without their consent

• Withheld material information about eligibility requirements for certain benefits 

In prepared remarks regarding the enforcement action, CFPB Director Richard Cordray stated:

“Discover used deceptive telemarketing techniques when it sold consumers all four of these add-on products.  Discover’s telemarketing scripts contained many misrepresentations, implying that these products were free of charge and simply “added benefits” that came with having a Discover card.  As a result, many consumers did not realize that their accounts were actually charged for these products.

[…]

This is the second action that the Bureau has taken, in coordination with a fellow regulator, to address the deceptive marketing of credit card add-on products.  We have also published a compliance bulletin to put other institutions more specifically on notice that such tactics are illegal and should be halted.  We continue to expect that more such actions will follow.  In the meantime, we are signaling as clearly as we can that other financial institutions should review their marketing practices to ensure that they are not deceiving or misleading consumers into purchasing financial products or services.” (emphasis added)

The previous enforcement action referenced by Director Cordray was the CFPB’s order requiring Capital One Bank to refund $140 million to consumers and assessing a $25 million penalty. The CFPB issued a compliance bulletin – CFPB Bulletin 2012-06 – which overviews the CFPB’s expectations for institutions offering these add-on products. NAFCU Members, make sure to check out the September Compliance Monitor article on the Capital One enforcement action.

What is clear is that the CFPB will continue to closely monitor credit card issuers for compliance with their expectations regarding these add on products, and as Director Cordray stated, more enforcement actions are likely to follow. Importantly, credit unions who offer these credit card add-on products directly, or indirectly, need to review their current practices and determine if they are meeting the CFPB’s expectations. Of course, NCUA will be the entity examining the majority of credit unions – but NCUA is likely to refer back to the CFPB’s expectations if they have concerns with credit union products.