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BNA INSIGHTS: Controversial New Regulator Begins With Aggressive Enforcement Settlement Against Financial Services Company
By Bradley J. Bondi and Nathan Bull, Cadwalader, Wickersham and Taft LLP, Washington, D.C. and New York
On July 17, 2012, the Consumer Financial Protection Bureau (“CFPB”) reached a groundbreaking $165 million settlement with Capital One Bank (USA), N.A. (“Capital One”) in its first enforcement action, ordering Capital One, a credit card issuer, to refund $140 million to 2 million customers who purchased its credit card “add-on” products and to pay a $25 million fine into the CFPB’s Civil Penalty Fund. In a related settlement reached with the Office of the Comptroller of the Currency (the “OCC”), Capital One agreed to pay a $35 million penalty and an additional $10 million in reimbursement payments, resulting in a total of $210 million in fines and reimbursements. In addition to the payment of $165 million in restitution and penalties, Capital One also consented to extensive oversight by the CFPB and certain remedial measures.
For a monthly fee, Capital One’s “add-on” products included “payment protection,” which allows debt cancellation if program members encounter certain “life events” such as unemployment, disability and death, and “credit monitoring,” which includes identity-theft protection services. According to the CFPB, from August 2010 to January 2012, Capital One violated the consumer financial protection laws through deceptive marketing and sales practices engaged in by its call-center vendors relating to the add-on products. The CFPB alleged that Capital One’s call-center representatives misled customers into the purchase of add-on products through false statements that the products were free and sold the payment protection products to customers that were ineligible for the program due to unemployment and existing disabilities (later allegedly denying the program’s benefits to such customers). As is typical in the resolution of enforcement actions, Capital One stipulated to the Consent Orders without admitting or denying the allegations brought by the CFPB and the OCC.
After a quiet first year, the CFPB now has aggressively asserted its vast enforcement powers and levied significant financial penalties in its regulation of the marketing and sale of consumer financial products. Financial services firms should consider retaining outside counsel to evaluate their marketing and sales practices of consumer financial products for compliance with the new regulatory framework.
The Consumer Financial Protection Bureau
The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) to implement and enforce federal consumer financial laws and to promote fair, transparent and competitive and accessible markets for consumer financial services and products. The CFPB consolidates the consumer financial protection responsibilities, including with respect to rulemaking, supervision and enforcement, that previously had been the province of seven federal agencies. In exercising its enforcement powers, the CFPB has the discretion to create any appropriate legal or equitable remedy to address violations of the consumer financial protection laws, including temporary and permanent cease-and-desist orders, rescission, reformation of contracts, refunds, disgorgements, damages and civil money penalties. In addition, the CFPB has wide and exclusive authority — except where it shares rulemaking power with the FTC — to promulgate rules “as may be necessary or appropriate to enable the Bureau to administer … enforce and otherwise implement the provisions of Federal consumer financial law.”
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