The Consumer Financial Protection Bureau, the new regulatory agency that is the brainchild of Massachusetts Senate candidate Elizabeth Warren and was set up under the auspices of the Dodd-Frank regulatory reform bill, was slow to get off the ground. Its appointed director, former Ohio attorney general Richard Cordray, only took the helm of the agency in January 2012. But it hasn’t wasted much time. On Monday, it announced its third significant enforcement action.
The bureau, which is explicitly set up to protect ordinary consumers, has a unique funding setup. Other financial regulatory agencies are funded through their enforcement actions; so the Securities and Exchange Commission offsets its congressional appropriations with the fines it levies against corporations and individuals. The CFPB, on the other hand, is housed within the Federal Reserve, and gets its budget from the Fed’s own earnings, although it operates independently. This arrangement, which insulates the bureau from the meddling that often comes with Congressional appropriations, has raised the ire of Congressional Republicans.
In just three months of enforcement and only three actions (all against credit card companies), the CFPB has won refunds and restitution for customers of $425 million and has assessed civil penalties paid to the Bureau of $46.1 million. A quick rundown of the CFPB’s actions.
Capital One, July 18, 2012 Amount: $210 millionThe CFPB’s first enforcement action was against the credit card company Capital One for deceptive marketing practices used in selling products and services to its credit customers. Capital One was ordered to pay a $140 million refund to customers along with a $25 million payment to the CFPB’s “Civil Penalty Fund.” The Bureau punished Capital One for deceptive practices in the marketing and selling of so-called “add-on products” like payment protection and credit monitoring. The CFPB found that Capital One would try to sell these products to customers with low credit scores when they called in to activate their cards and misled customers about the benefits of the products and their costs. The CFPB also found that some customers were enrolled in these programs without their consent and then had trouble canceling them.
The CFPB ordered Capital One to stop the marketing program until it could submit a plan to the bureau showing that these practices would be avoided in the future. Capital One was hit with $210 million in penalties: $140 million to refund customers, $25 million to the CFPB in civil penalties, $35 million to the Office of the Comptroller of the Currency in civil penalties, and another $10 million of restitution sought by the OCC.
Discover, Sept. 24, 2012 Amount: $214 millionThe CFPB’s second enforcement action also stemmed from the deceptive selling and marketing of so-called “add-on products” by a major credit card company. After an investigation originally started by the FDIC, the CFPB found that Discover had been deceptive about the price of certain add-on products, had sold the products without customers’ knowledge, and had misled customers about their eligibility for the products. The deceptively marketed products included credit score tracking, identify theft protection, and payment protection.
Like Capital One, Discover was ordered to change its marketing program and was required to seek the approval of the CFPB and the FDIC. It was also ordered to pay restitution to approximately 3.5 million customers who purchased these products between December 2007 and August 2011, to the tune of some $200 million, plus $14 million in penalties, split evenly between the U.S. Treasury and the CFPB.
American Express, Oct. 1, 2012 Amount: $112.5 millionThe third action, this time against American Express, was not for a particular marketing or sales practice, but instead dinged the credit card company for violating consumer protection laws “at every stage of the consumer experience, from marketing to enrollment to payment to debt collection.” The CFPB found that American Express companies had told customers they would receive $300 for signing up with a certain program; charged illegally high late payment fees; used different credit ratings for customers based on age, a violation of federal lending laws; failed to fully report customer disputes to credit bureaus; and told customers that paying off old debt would improve their credit scores when, in fact, American Express was not reporting the payments at all.
The enforcement ordered mandated that American Express end the illegal practices, repay $85 million to some 250,000 customers, and pay $27.5 million in civil penalties to the CFPB, the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency. The investigation was originally started by the FDIC and the Utah Department of Financial Institutions.