In a settlement with the FDIC and CFPB announced Monday, Discover Financial Services agreed to refund $200 million to customers and pay a $14 million fine to the regulators to resolve allegations that it used misleading marketing tactics to persuade customers to purchase expensive services like payment protection and credit monitoring. All outlets note that the agreement follows a similar $210 million settlement reached by the CFPB and OCC with Capital One over similar charges two months ago.
McClatchy says the settlement is “the latest sign of stepped-up enforcement action from the” CFPB, and quotes Director Richard Cordray as saying, “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.” Ken Clayton, chief counsel for the American Bankers Association, said, “I do think that the CFPB has obviously made it clear that they want to focus in on this, and I think the institutions understand they have to work with the regulators on this.”
Dow Jones Newswires reports the regulators said about 3.5 million customers would receive a refund as compensation for Discover’s “deceptive telemarketing and sales tactics.” Dow Jones explains that many banks have halted sales of the add-on products following a more aggressive push by regulators to crack down on deceptive sales practices, notably the Capital One settlement.
The AP reports regulators charged that Discover’s “call-center workers enrolled customers in the programs without their consent, misled them about the benefits and left customers thinking the products were free.” Discover had “said this summer that it expected an enforcement action about add-on products.” The AP explains the settlement “is only the third public enforcement action by the consumer bureau,” but other companies, including, American Express have disclosed in regulatory filings that they expect “to pay refunds and fines related to add-on products.”
The Los Angeles Times reports charges over deceptive marketing of the products have arisen as banks search “for new sources of revenue in the face of a tough economy and tighter regulations.” Ed Mierzwinski, director of the consumer program for the U.S. Public Interest Research Group, said, “Banks have been doing this for years, but we never had a regulator who protected consumers before.”
Reuters quotes Kent Markus, assistant director of enforcement at the CFPB, as saying, “Discover’s deceptive marketing of add-on products prevented consumers from understanding that they were actually buying a product and not simply receiving a free benefit.” Discover Chief Executive David Nelms responded to the settlement by saying, “We have worked hard to earn the loyalty of our card members, and we are committed to marketing our products responsibly.”
Bloomberg News reports Discover said it “will continue to sell credit-card add-on products subject to new restrictions” under the settlement. The company “must meet 15 pages of requirements, down to the font size of disclosures delivered to consumers under a consent order” signed with the settlement. Spokesman Don Drummond said, “Our current intention is to continue to market these products.” Isaac Boltansky, policy strategist with Compass Point Research & Trading, “said the effect of the regulators’ crackdown will be to reduce the revenue card companies make from add-on products.”
From the American Association for Justice news release.