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CFPB Again Gets Full Refund for Customers Abused By Their Credit Card Issuer UPDATED

The Consumer Financial Protection Bureau has struck again with an enforcement action against credit card abuse. Previously, CFPB got a full refund for Capital One customers deceived into paying for add-on services on their credit card. Building on that work, CFPB joined with the FDIC to file a similar enforcement action with Discover, another major player in the credit card industry. Much like the Capital One action, CFPB will obtain a full refund for all Discover card customers who were persuaded into the add-on services:

Telemarketers used scripts that “failed to disclose material terms and conditions” of protection products and “spoke more rapidly during the mandatory disclosure portion of the sales call,” regulators said in the enforcement order.

In some cases, customers were enrolled in the programs without their consent. Discover provided scripts to call-center agents that suggested customers would not be charged for products until they reviewed written materials. Yet those materials were not provided until after the firm processed the purchase.

The refund totals $200 million, and CFPB added on an additional $14 million in penalties for Discover. This is pretty crucial, because it’s not necessarily how other federal regulators work. Often the fine for deceptive practices ends up being lower than the profits gained out of the deceptive practice. So the fine becomes a mere cost of doing a profitable business. However, CFPB in its enforcement actions has made the deceptive practices cost-ineffective. That helps to ensure that the companies in question won’t undertake them again. CFPB also sets up a number of compliance measures for Discover’s telemarketers to follow, to ensure full disclosure of the products and services purchased rather than this use of deception.

CFPB cannot by law bring criminal prosecutions against any offending financial agency; it can only refer those cases to the Justice Department. So its enforcement actions represent the leading edge of what they can do as far as a deterrent goes. And forcing a give-back of all the money gained by the deceptive practice plus penalties isn’t a bad start.

Elizabeth Warren, the Massachusetts Senate candidate and the brainchild of the CFPB, praised the enforcement action in a statement:

“I’m proud that the Consumer Financial Protection Bureau is standing up for working families by holding major credit card companies accountable for deceptive practices,” said Warren. “The new consumer agency is a strong advocate for hardworking men and women here in Massachusetts and across the country. The CFPB has been hard at work reducing the fine print in credit card agreements and assisting with consumer complaints. Now it is taking enforcement action against some of the largest financial institutions to try to make sure that even the biggest banks follow the rules. These actions will help protect families from financial tricks and traps and create a level playing field.”

I’d think that any credit card issuer might as well go to CFPB and start negotiating at this point. They will get caught sooner or later with some of their deceptive practices.

UPDATE: I just went through a bit of this with the CFPB. And I shouldn’t have been too hasty in describing this as a full refund. Basically, any customer of Discover who never used the services they were duped into buying got a full refund. Those who did use the services (about 1.5 million of the total 3.5 million in the affected class) will get a partial but not full refund on those products. The amounts vary a bit based on when the customers purchased the product and how long they had it. Specifically, all customers will get back at least 90 days’ worth of fees paid, and 2 million get full restitution on the add-on fees.

I would still say on balance that this averages out to it not being cost-effective for Discover to cheat their customers in the first place, which was my point. The thinking is that those who used the products may have purchased them anyway, and there’s a cost involved for Discover in providing the services (though obviously they operate at a profit or they wouldn’t issue them). But the short answer is that 2 million Discover customers bought these services for no reason, and were likely deceived into buying them. Those people get full restitution.

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David Dayen

David Dayen