On December 23, 2013, a large credit card company was ordered by the Consumer Financial Protection Bureau (CFPB) and other federal agencies to pay $75 million in restitution and penalties based on allegations of a variety of illegal practices, including unfair billing and deceptive marketing of add-on products. The CFPB alleged that the company misled consumers about the benefits of the products, the length of coverage, and the costs. Specifically, the CFPB alleged that the company failed to obtain written authorization from consumers before billing them for programs, such as identity theft protection and, further, did not provide services after customers had been charged for these programs. Finally, the CFPB claimed that the company unfairly charged fees and interest rates, which caused customers to exceed their credit limits and incur extra fees.

As a result, the company was ordered to refund $59.5 million to more than 335,000 customers and pay $16.2 million in penalties to the CFPB, Federal Deposit Insurance Corporation (FDIC), and Comptroller of the Currency (OCC). CFPB Director Richard Cordray stated that, “We first warned companies last year about using deceptive marketing to sell credit card add-on products, and everyone should be on notice of this issue. Today, we are refunding thousands of customers who were harmed by these illegal practices. Consumers deserve to be treated fairly and should not pay for services they do not receive.”

Practical Impact

This enforcement action marks the latest in a string of major proceedings the CFPB, in coordination with other federal agencies, has prosecuted against financial service companies. Consistent with many of the enforcement actions in the past, add-on products sold to consumers, including protection from identity theft, are at the heart of the alleged deceptive practices.

Further, the interagency cooperation between various regulators and the CFPB, including the FDIC and OCC, is telling that an eye towards compliance should not stop solely with the CFPB. Add-on products continue to be a main focus of the CFPB and other regulators and should be closely examined for any perceived deceptive or unfair impact. 

The editors and contributors include:  David N. AnthonyChad R. FullerVictoria Holstein-ChildressJohn C. LynchAlan D. WingfieldVirginia Bell Flynn, and Massie P. Cooper.