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CFPB Nails Capital One for Deceptive Marketing

As it approaches its second anniversary, the Consumer Financial Protection Bureau today showed its teeth in an enforcement action against Capital One that will cost the credit card giant upwards of $150 million.

Citing deceptive marketing tactics used by Capital One’s vendors to pressure or mislead consumers into purchasing “add-on products,” when they activated their credit cards, the CFPB has charged Capital One with refunding $140 million to two million customers in addition to a $25 million penalty.

“Today’s action puts $140 million back in the pockets of two million Capital One customers who were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use,” said CFPB Director Richard Cordray. “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”

Through a “probe” into Capital One’s operations, CFPB examiners found Capital One’s call center vendors used the deceptive marketing tactics to sell the add-on products, including payment protection, credit monitoring and access to credit education specialists.

Consumers meeting certain low credit limit or low credit score criteria were offered the products, the CFPB found. They were sometimes misled about the product benefits, deceived about the nature of the product, misled about eligibility and cost, or enrolled without consumer consent, according to the CFPB’s findings.

As a result of the enforcement action, the CFBP has required Capital One to pay $25 million to the CFPB’s Civil Penalty Fund and has ordered refunds totaling $140 million to customers who were targets of the marketing tactics.

Under the CFPB’s authority, the agency is charged with examining banking and non-banking financial institutions including mortgage companies of all sizes. The bureau has begun examination of mortgage companies as of January 2012, but has yet to issue any enforcement actions in the mortgage space.

In June, the CFPB published an in-depth report on the reverse mortgage industry citing deceptive marketing practices as one area of concern.

Written by Elizabeth Ecker