CFPB Issues its First Enforcement Action against Capital One Bank
by Donna M. Saati, Esq.
Associate Counsel
In its first public enforcement action since its inception, the Consumer Financial Protection Bureau (the “CFPB” or “Bureau”), has ordered Capital One Bank, (U.S.A) N.A. (“Capital One”) to refund consumers and pay civil money fines to settle charges of deceptive marketing tactics.
The CFPB, established by the Dodd-Frank Act (the “Act” or “Dodd-Frank”) to increase oversight of consumer financial services and products, is authorized to investigate and pursue covered financial institutions alleged to have engaged in unfair, deceptive, or abusive practices.
Through its supervision process, the CFPB found that Capital One had engaged in deceptive tactics which amounted to violations of Section 1036, prohibiting unfair, deceptive, or abusive acts or practices. Specifically, the Bureau charged Capital One with:
- Misleading consumers about the benefits of the particular product/s;
- Deceiving consumers about the nature of the particular product/s;
- Misleading consumer about eligibility requirements for the particular product/s;
- Misinforming consumers about the cost of the particular product/s; and/or
- Enrolling consumers in the particular product/s and/or program/s without their consent.
- Make restitution payments up to $150 million to affected consumers;
- End deceptive marketing by agreeing to cease all marketing of the particular product/s until the CFPB has approved a compliance plan ensuring that future violations do not occur. The Bureau has demanded revisions to Capital One’s Compliance Management System which shall include a written enterprise-wide program designed to ensure that all consumer products and services sold are in compliance with section 1036 of the Act;
- Assure compliance with the terms of the Consent Order through the work of an independent auditor; and
- Pay a $25 million civil money penalty to the Civil Penalty Fund which is used to refund victims of consumer abuse and pay for financial education programs.
- The appropriateness of the penalty with respect to the financial resources and good faith of Capital One;
- The gravity of the conduct by Capital One;
- The severity of the risks to and losses of consumers;
- Capital One’s history of previous conduct;
- Capital One’s cooperation during the investigation; and
- The substantial redress provided to affected consumers in the form of restitution payments.
It is important to note that Capital One was only cited for its “deceptive” acts and/or practices pursuant to section 1036. Under Dodd-Frank, the principles of “unfair” and “deceptive” acts and/or practices are similar to those under section 5 of the FTC Act. Accordingly, a representation, omission, act, or practice is “deceptive” under Dodd Frank when:
- The representation, omission, act, or practice misleads or is likely to mislead the consumer;
- The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and
- The misleading representation, omission, act, or practice is material.
It is equally important to note that the actors in this matter were third-party service providers for whom Capital One failed to provide “effective oversight”. This enforcement action marks a rare occasion where a federal regulator has held an entity entirely responsible for the actions of its third-party vendor. As such, the Consent Order requires Capital One to revise its Compliance Management System to include a “written enterprise-wide program designed to ensure that all consumer products and services sold by [Capital One], or through [Capital One’s] Service Providers comply with Section 1036.” The Bureau has ordered that this be completed and submitted to the CFPB for its approval within ninety (90) days of the issuance of the Consent Order. The CFPB also issued a compliance bulletin to put other institutions on notice of the Bureau’s intolerance of deceptive marketing practices and to make it known that covered institutions will be held responsible for the actions of their third-party service providers.
At this time, it appears that additional public enforcement actions will be forthcoming in the near future. However, according to statements made by Bureau Director Richard Cordray, the focus of CFPB examinations at this time will remain on “issues that clearly violate the law and hurt consumers” and not “on small or technical matters where they’re in the gray area.”
About the Author
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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