UPDATE: Reporters are asking me: “Are all the kids doing it, or was it just Cap One?” Just a few weeks ago, David Lazarus of the LA Times reported that “Some Citibank credit card customers have received a sales pitch for a security service with their latest credit card bill. The box for signing up for the $5.95-a-month service is already checked.” So, I will not be surprised if we see more actions regarding “mysterious” credit charges by the CFPB.
ORIGINAL POST: The CFPB, which turns one on Saturday, is coming of age. It has announced its first-ever enforcement action, against Capital One Bank, for alleged deceptive marketing of junky payment protection and credit monitoring products to cardholders. Typically these products can cost up to $14.95/month or even more in add-on monthly fees on your credit card bill. Victims will receive direct compensation without needing to apply or complain.
Capital One will pay over $200 million in direct restitution and civil penalties. The order also alleges that the bank targeted the useless products at lower-income customers. The bank denies it all, as they always do.
Payment protection products generally only “promise” to pay your minimum balance, and then only for a year, if you are laid off, disabled, sick or otherwise unable to pay your card. Consumer advocates receive numerous complaints that banks find loopholes or exceptions allowing them to refuse to make even these modest minimum payments in most cases. Payment protection costs a lot but is of little value.
Credit monitoring services are hyped as a defense against identity theft. The only real defense against identity theft is a security freeze (provided as a state law protection). Don’t fall for credit monitoring pitches. See CFPB’s new fact sheet on mystery credit card fees.
The CFPB order notes that the practices Capital One is being penalized for began as early as August 2010. At that pre-CFPB time, Capital One, as a national bank, was primarily supervised by the powerful but bank-friendly Office of the Comptroller of the Currency or OCC. In 2000, the OCC was shamed into taking action against Providian, at the time a large credit card company, only after the tiny San Francisco District Attorney found it was engaging in eerily similar practices to those that Capital One was participating in in the year 2010. We don’t ask “what’s in your wallet,” but we often say, “Who’s in your pocket? The OCC, of course.” Positively, the OCC, which is under new management, did join CFPB in this action.
Senior Director, Federal Consumer Program, U.S. PIRG Education Fund
Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.