Capital One Smacked With Huge Credit Card Fine (Update 2)
Updated with Capital One's statement, market close information, and comment from Sterne Agee analyst Henry Coffey.
NEW YORK (TheStreet) -- The Consumer Financial Protection Bureau on Wednesday announced its first regulatory enforcement action, ordering a Capital One (COF) subsidiary to refund $140 million to two million credit card customers and pay an additional fine of $25 million.
The CFPB was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama in July 2010. The Bureau said that its action against Capital One Bank (USA) NA resulted from an "examination that identified deceptive marketing tactics used by Capital One's vendors to pressure or mislead consumers into paying for "add-on products" such as payment protection and credit monitoring when they activated their credit cards."
The Office of the Comptroller of the Currency, which regulates Capital One Bank (USA) NA, assessed a $35 million civil penalty against the bank.
Capital One said in a statement that the company's "third party vendors did not always adhere to company sales scripts and sales policies for Payment Protection and Credit Monitoring products, and the bank did not adequately monitor their activities," adding that "the agreement with the OCC also addresses certain billing practices relating to Credit Monitoring products administered by third party vendors. "
Ryan Schneider, the president of Capital One's card business said "we apologize to those customers who were impacted and we are committed to making it right," and that "we are accountable for the actions that vendors take on our behalf,"adding that "these marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold."
The company also moved up its second-quarter earnings announcement by a day, to Wednesday, after the market close.
Capital One's shares pulled back 2% to close at $54.89.
CFPB director Richard Cordray said that the affected credit card 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."