Feds ordered Discover Bank to refund $200 million to 3.5 million cardholders for deceptive telemarketing practices. In a joint investigation, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation found Discover misled consumers into purchasing unnecessary financial products and costly add-on services. The agencies announced the multi-million dollar settlement Monday.
The investigation uncovered beguiling telemarketing scripts designed to mislead consumers into paying for credit card add-on products including credit score tracking, payment protection, wallet protection and identity theft protection. According to the agencies, Discover implied these services were free and confused customers about whether they were agreeing to buy a product or merely consider it. Discover withheld essential information and even enrolled customers without their consent. Telemarketers often quickened their speech when explaining pricing and terms.
Discover, the sixth-largest credit card issuer in the States, neither admitted nor denied the allegations. They did, however, agree to refund $200 million to cardholders and pay a $14 million fee split evenly between the two investigating agencies.
“We have worked hard to earn the loyalty of our card members, and we are committed to marketing our products responsibly,” Discover Chief Executive David Nelms said. He was not telling a joke.
The refund will be split between 3.5 million cardholders charged for add-on products between December 1, 2007 and August 31, 2011. The refund amount will vary from customer to customer, assessed by what product was purchased, when it was purchased and for how long the customer had it. Recipients will be reimbursed at least 90 days worth of fees. Refunds will be automatically credited to cardholder accounts.
Trends of treachery
It is only the Consumer Financial Protection Bureau‘s second large public enforcement. The agency was created under the 2010 financial overhaul law with the goal of guarding consumers from hidden fees and other financial dangers. The investigation comes in the wake of a similar enforcement action this July. Capital One, who was also found to have misled customers into buying superfluous financial products, was ordered to refund $140 million to customers and pay a $25 million penalty.
In addition to paying the refunds and fee, Discover agreed to modify its telemarketing techniques and employ an independent auditor to oversee compliance.
The $200 million settlement is largest restitution the FDIC has ordered for any institution. The action demonstrates what consumer advocates hope will be a ongoing trend in consumer protection.
“People deserve to be treated fairly by their financial institutions,” CFPB director Richard Cordray said. “We will continue to work toward that goal with great determination.”
The agencies’ findings represent a nasty habit amongst financial institutions. John Taylor, president of the National Community Reinvestment Coalition, said, “Long after the housing crisis and collapse of the economy and so on, these companies, Capital One and Discover, continued to do abusive things. People ought to be concerned about who’s in their wallet because this is the way that consumers get ripped off.”
With the CFPB on the watch, consumers can feel a little more secure–but only a little. The bureau has a long way to go in cleaning up financial institutions in the US. Consumers must remain vigilant and take the proper precautions against financial threats. But with any luck, the CFPB’s actions against these credit card giants will serve as a warning to other financial institutions.