Discover Defrauds Customers, Must Pay $200 Million
You get the calls all the time from credit card companies – “Would you like to hear about additional products offered by the bank?” If you said yes during a call from Discover during the over three-and-a-half-year period from December 2007 through August 2011, you may be in for a little extra cash.
Discover announced on September 21 that it has settled deceptive marketing charges brought by the Federal Deposit Insurance Corporation (FDIC) and Consumer Financial Protection Bureau (CFPB), which said the bank tricked customers into paying for extra credit protection programs.
This is the second settlement achieved by the CFPB regarding credit card add-on products; the agency settled with Capital One in July for $210 million over similar allegations, according to BankCreditNews. Such cases are signaling a trend in increased enforcement on behalf of consumers.
“Deceptive conduct in our marketplace isn’t diminishing – that’s for sure,” says Eric Gibbs, a consumer lawyer with Girard Gibbs in San Francisco. “But since tort reform and recent Supreme Court opinions are closing the courthouse doors to average American consumers, it is imperative that federal and state governments commit more and more resources to consumer protection efforts.”
Consent Order Provides for Automatic Refunds
Under its consent order, Discover has agreed to refund $200 million to 3.5 million customers who signed up for the add-ons, which included payment protection, credit score tracking, identity theft protection and wallet protection, according to the CFPB. The bank will pay an additional $14 million in civil monetary penalties to the FDIC and the CFPB.
“Discover’s telemarketing scripts contained misleading language likely to deceive consumers about whether they were actually purchasing a product,” said the CFPB. “Discover’s telemarketers also often downplayed key terms and spoke quickly during the part of the call in which the prices and terms of the add-on products were disclosed.”
Consumers were misled about the fact that there was a charge for the products, and whether they had actually purchased the products or been enrolled without their consent. “Discover representatives processed the add-on product purchases without some consumers’ consent. These consumers were then charged for the product on their Discover card,” according to the CFPB.
Under the order, in addition to paying the $200 million in restitution and the $14 million penalty, Discover has agreed to stop its deceptive marketing practices and refund affected consumers with credits to their cards or checks in the mail: No need to apply. The bank will also submit to an independent audit.
New Agency Flexing Muscle
Consumer advocates are happy with the enforcement efforts of the new consumer bureau, according to the Los Angeles Times. “Banks have been doing this for years, but we never had a regulator who protected consumers before,” the paper quotes Ed Mierzwinski, director of the consumer program for the U.S. Public Interest Research Group, as saying.
The Consumer Financial Protection Bureau was set up under the Dodd-Frank Act, which Congress passed in response to the financial crises that started in 2008. The CFPB opened its doors for business in July 2011.
“The central mission of the CFPB is to make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products,” according to the agency’s website.
In spite of the CFPB’s efforts at protection, consumers still need to keep a lookout for such deceptive practices as banks get more desperate for cash in a tighter economy.
“Folks who believe they are being tricked should complain to their bank or credit card company, in writing,” says Gibbs, “and if the problem isn’t resolved quickly, they should file a complaint with a federal or state regulator and seek free advice from a consumer protection lawyer.”