Bank of America becomes the fifth card-issuing bank to pay a hefty fine for over-hyping debt protection and credit monitoring services
Bank of America became the fifth major credit card-issuing bank to refund money for flawed add-on products Wednesday, agreeing to pay $727 million to about 2.9 million customers.
“Bank of America both deceived consumers and unfairly billed consumers for services not performed,” U.S. Consumer Financial Protection Bureau Director Richard Cordray said in a statement announcing the regulatory order.
The bank will also pay a $20 million civil penalty to the agency and $25 million to the Office of the Comptroller of the Currency.
The refund is by far the largest announced so far in the CFPB’s crackdown on card companies’ debt cancellation and credit monitoring services. American Express, Capital One, Chase Bank and Discover have agreed to refund a total of $718.5 million, plus penalties, since the consumer bureau began issuing refund orders in 2012. (See chart below, “Costly deception: refunds for credit card add-on marketing.”)
The latest announcement brings the total of add-on refunds announced to nearly $1.5 billion, most of which have been paid back via credits on monthly statements.
“We intend to continue cleaning up this market as necessary to ensure that consumers are treated fairly,” Cordray said in remarks to reporters following the announcement. The CFPB is urging card issuers to provide customers’ credit scores for free, rather than charge for credit monitoring.
The string of enforcement actions shows that the consumer protection agency, created by the 2010 Dodd-Frank Act, is policing the financial sector vigorously, consumer advocates said.
“I think it sends a very strong message out to big banks,” said Ed Mierzwinski, director of consumer programs at U.S. Public Interest Research Group. “This was deceptive marketing of relatively useless, junky products — which sometimes were not even provided.”
Among major U.S. card issuers, Citibank, Wells Fargo and Barclaycard US have not been issued regulatory orders concerning add-ons. All have said they have halted sales of the products or overhauled their marketing practices. Barclays operations in the United Kingdom set aside nearly $4 billion to make refunds to payment protection customers there, according to its financial filings.
In a statement Wednesday, Bank of America said the total to be refunded is about $738 million, $11 million more than the figure announced by the CFPB and contained in the consent order. The bank has said that it stopped selling identity theft protection in 2011 and payment protection in 2012, and that it completed refunding ID theft protection fees in late 2013. Refund figures in the order are estimates, the order states, subject to later review.
“We are committed to ensuring that our products and services are marketed and billed responsibly,” spokeswoman Betty Riess said. In the order, the bank agrees to make the refunds without admitting wrongdoing.
Average $306 refund for privacy add-ons
Of the refunds, about $459 million will go to 1.5 million customers of ID theft protection services called “Privacy Guard,” “Privacy Source” and “Privacy Assist,” for an average payment of $306 per affected customer.
The bank charged customers for the ID theft protection service before it had obtained access to enrollees’ credit information, meaning it was unable to monitor their credit. The charges sometimes triggered extra fees or interest on customers’ accounts. The overbilling spanned an 11-year period from at least October 2000 to September 2011, according to the consumer protection bureau.
The remaining $268 million in refunds will go to 1.4 million customers of debt cancellation products called “Credit Protection Plus” and “Credit Protection Deluxe,” the CFPB said, for an average of $191 per customer.
Bank of America and its service providers misrepresented the benefits of the debt cancellation products, for example by falsely claiming there was a $25,000 death benefit, the CFPB said. The payment protection products are designed to let customers erase some of their balance if they ran into hardships such as job loss or disability. However, marketers exaggerated the benefits available, the agency said, and understated the difficulty of applying for benefits.
Under the order, Bank of American cannot write off the penalties paid to the government on its taxes, or seek reimbursement through insurance. Refunds are to appear as a credit on cardholders’ bills, or be mailed out as a check to past customers. For people with a charged-off balance owed to Bank of America, the amount of the refund is supposed to be recorded as an offset to the debt. BofA said the majority of payments and credits have already been made.
|COSTLY DECEPTION: REFUNDS FOR CREDIT CARD ADD-ON MARKETING|
|Card issuer||Refunds||Announced||Customers given refunds|
|Capital One||$150 million||7/18/2013||2,000,000|
|American Express||$59.5 million||12/4/2013||335,000|
|Bank of America||$727 million||4/9/2014||2,900,000|
See related: Card add-on products stage a comeback