Capital One to repay fees to customers who sought to close credit accounts
Friday, February 19, 2010
Capital One reached an agreement with its federal regulator Thursday to reimburse several thousand credit card customers whom it charged annual fees after they had asked to close their accounts, a practice that amounted to a pattern of repeated errors in its own favor.
The McLean company, which agreed to pay at least $750,000 in restitution, issued a statement expressing regret. It said that the fees were charged between 2004 and 2006 and that it has since taken steps to prevent errors.
The public action by the regulatory agency, the Office of the Comptroller of the Currency, is part of a broader effort by the federal government to crack down on credit card lenders and to demonstrate a commitment to consumer protection. It follows a decade in which banking regulators rarely imposed public penalties on banks that violated consumer protection laws, instead correcting problems quietly or not at all.
The OCC emphasized that in this case, the violations happened during a period when it was not responsible for regulating Capital One. It said the attorneys general of West Virginia and California brought the company's violations to its attention.
Credit card companies routinely impose a waiting period before honoring account-closing requests to make sure that no charges are outstanding. Banks are not allowed to impose annual fees during that waiting period, provided that the borrower is not carrying a balance. But Capital One continued to impose fees on such accounts when the previously scheduled assessment date fell during the waiting period.
Customers who called to complain got their money back, but regulators found that Capital One did not make refunds to about 3,400 customers who were assessed annual fees between January 2004 and October 2006. In some cases, the company compounded the problem by charging interest and penalty fees on the unpaid annual fees.
Capital One said in a statement that it ended the practice in 2006.
"At the time, we refunded membership fees for many customers who contacted us directly but, in retrospect, we should have done so for an additional 3,400 customers, as well. We sincerely regret this error," the company said.
The company added that it had agreed voluntarily to extend restitution to customers who were carrying a balance when they asked to close their accounts. Federal regulations allow lenders to assess fees until the balance is paid in full, but Capital One said it would refund fees charged during the same period to about 15,000 customers who paid their balances within 90 days after asking to close their accounts.