How to Avoid Disastrous Million-Dollar CFPB Penalties

Discover is slapped with a $14 million penalty and $200 million restitution. JP Morgan Chase receives a $20 million penalty and $300 million in restitution, and an additional record settlement totaling $13 billion (yes, billion).  This list goes on. What gives?

The Consumer Financial Protection Bureau (CFPB) investigated and all were found in violation of one or more of the following: UDAAP, Truth in Lending, Fair Credit Reporting Act, Telephone Consumer Protection Act, deceptive debt collection practices, and other highly regulated practices.

With all these headlines, fines and restitutions, you may be thinking, “someone was asleep at the wheel,” and that could be true. These are global companies who rely on third party vendors, and oversight was likely lacking. But finding yourself in the crosshairs of the CFPB is easier than you think, and you may very well be taken off-guard when the CFPB calls on you. That’s because violations often show up through consumer complaints, and in the way financial products get marketed to consumers.

In October 2012, there were three separate consent orders issued against American Express for unfair, deceptive, or abusive acts or practices (UDAAP) violations, related to deceptive marketing practices and deceptive debt collection practices.  According to a December, 2013 article in the Los Angeles Times, the CFPB alleged that from 2000 to 2012, American Express subsidiaries and their vendors and telemarketers engaged in misleading and deceptive tactics to sell some of the company’s credit card add-on products, including “Identity Protect,” “Account Protector” and “Lost Wallet Protector.”

The LA Times article stated, “The regulators said the companies misled consumers about the benefits of the products, the length of coverage and the costs. The companies were also accused of unfair billing practices related to identity protection products. The company charged many consumers for these products without written authorization, the regulators said. In addition, the companies were accused of unfairly charging cardholders interest and fees. Some unfair monthly fees pushed account balances past their limits, causing additional unfair fees and interest, the regulators said.”

The result of the investigation by the CFPB was that American Express canceled the financial products, received a $27.5 million fine, and ordered to pay $75 million in restitution to 335,000 customers.

According to the CFPB, Citibank, as well as its subsidiaries Department Stores National Bank, and Citicorp Credit Services, Inc. (USA), marketed or offered credit card add-on products to consumers nationwide. From at least 2003 through 2012, Citibank actively marketed and enrolled consumers in five debt protection add-on products: “AccountCare,” “Balance Protector,” “Credit Protection,” “Credit Protector,” and “Payment Safeguard.” These products promised to cancel a consumer’s payment or balance, or defer the payment due date, if the consumer experienced certain hardships, such as job loss, disability, hospitalization, and certain life events, such as marriage or divorce.

Citibank also marketed and sold other add-on products – “IdentityMonitor,” “DirectAlert,” “PrivacyGuard,” and “Citi Credit Monitoring Services” – that offered credit-monitoring or credit-report-retrieval services. Citibank also offered “Watch-Guard Preferred,” a wallet-protection service that notified credit and debit card issuers if the consumers reported a card lost or stolen.

The CFPB found that Citibank or its service providers marketed these products deceptively during telemarketing calls, online enrollment, “point-of-sale” application and enrollment at retailers, or when enrolled consumers later called to cancel certain products. For example, confusing text on pin-pad offer screens at the point of sale increased the likelihood that consumers applying for credit cards at a retailer would not realize they were both applying for credit and purchasing debt-protection coverage.

In addition, there were misleading or illegal marketing or retention practices, including costs and fees for coverage (consumers charged for a 30-day free trial), enrollment without billing authorization, omitting information about eligibility and many more actions. One product was marketed to those individuals inappropriately where they were already unemployed and because they were already unemployed when they undertook the product, they were ineligible to receive the benefits.

The Wall Street Journal, considered a business friendly publication, was rather critical in its reporting of Citi in these cases, agreeing with the CFPB that Citi had misled customers into buying extra products that they didn’t need or didn’t understand.