September 1, 2016

CFPB Hasn't Forgotten About Deceptive Credit Card Add-On Product Practices

3 min

Since its inception, the CFPB has maintained a continued focus on deceptive marketing and billing practices in connection with credit card add-on products. The CFPB's first-ever enforcement action in July 2012 dealt with such practices, and, in the four years since, the agency brought numerous cases related to similar activities. On August 25, the CFPB announced that it entered into a consent order with First National Bank of Omaha (First National) requiring the bank to pay a $4.5 million penalty and $27.75 million in relief to consumers harmed by the bank's deceptive marketing and billing of credit card add-on products.

Specifically, the CFPB alleged that First National engaged in deceptive practices in connection with debt cancellation and credit monitoring products. According to the agency, First National deceived consumers into listening to their debt cancellation sales pitches by implying that the consumer had to stay on the phone while their credit cards were being activated, even though the activation process was nearly instantaneous. In addition, First National and its marketers allegedly deceived consumers into enrolling in these programs without proper authorization or by implying that the program was free.

While the products were advertised as easy to cancel, the CFPB found that the bank instructed and incentivized its customer representatives to make this process difficult. The bank also maintained and enforced strict requirements effectively preventing most consumers from benefiting from the debt cancellation services. For example, First National defined "pre-existing" health conditions that would disqualify a consumer from exercising a debt cancellation claim to include any condition that occurred up to six months after enrollment.

With regard to the credit monitoring product, First National was required to obtain written authorization and personal verification information before it could access a consumer's credit information and provide the service. The CFPB noted that in many cases consumers never actually received the credit monitoring services that they paid for because the bank either failed to properly process their authorization or could not correctly match the consumer's information with the information on file with the credit agencies. Instead of resolving these errors, the bank allegedly continued to bill these costumers for credit monitoring services they were not receiving.

The CFPB has criticized similar practices in numerous prior enforcement actions, and, in 2016, financial institutions are arguably on notice of the high risk of such activities. In the case of First National, however, the enforcement action covered activities that occurred between December 1997 and October 2012 – a period extending from recently after the CFPB's first action against deceptive add-on product practices to over a decade before the CFPB existed. Financial institutions are again reminded that the CFPB believes its authority to prohibit deceptive acts and practices through administrative enforcement actions extends retroactively. Institutions that have taken appropriate steps to discontinue similar practices are encouraged to discuss with Venable's CFPB Task Force how to minimize any residual enforcement risk for past activities.

Margaret Kelly is a law clerk and is not yet admitted to practice law.