Capital One to pay $210 million for deceptive credit card practices

The government’s new consumer watchdog took its first enforcement action Wednesday by fining McLean-based Capital One Bank for deceiving millions of customers into buying costly and unneeded services when they signed up for credit cards.

The nation’s fifth-largest bank will pay $210 million, mostly to reimburse consumers who were duped into paying for credit monitoring and other add-ons. Targeting the unemployed or people with poor credit, call-center agents falsely claimed that such services were mandatory or free. Some customers were wrongly told that enrolling would improve their credit scores or provide debt forgiveness if they got sick.

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The case marks the Consumer Financial Protection Bureau’s first extensive investigation into the operations of a financial powerhouse, an effort that comes on the anniversary of the bureau’s opening. Despite Republican efforts to dismantle the agency, the CFPB is flexing its regulatory muscle at a time when bank misconduct is coming under fire around the world.

“We are putting companies on notice that these deceptive practices are against the law and will not be tolerated,” CFPB Director Richard Cordray said in a statement. “Capital One customers were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use.”

Officials at the consumer bureau say a third-party vendor, hired by Capital One, used high-pressure tactics to deceive customers. Some cardholders were even enrolled without their consent, CFPB officials said. They were then automatically billed for the product, which they had trouble canceling.

Known for its “What’s in your wallet” television campaign, Capital One settled the charges without admitting or denying wrongdoing, though the bank took responsibility.

“We are accountable for the actions that vendors take on our behalf,” Ryan Schneider, president of Capital One’s card business, said in a statement. “These marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold. We apologize to those customers who were impacted and we are committed to making it right.”

The bank will pay the consumer agency a $25 million fine and $35 million to its regulator, the Office of the Comptroller of the Currency (OCC). Capital One will also refund $150 million to 2.5 million consumers who purchased credit-monitoring and payment-protection services between August 2010 and January.

Customers will begin receiving refunds later this year. Those with active Capital One accounts will be automatically credited, while customers who have since closed their accounts will receive a check.

The average payout is expected to be less than $100 per cardholder.

Capital One said it was alerted to problems late last year, at which time it stopped phone sales of the products and began identifying affected customers. The bank said it is putting stronger internal controls in place, including recording more of its calls.