CFPB Outlines Card Marketing Guidelines

Agency describes expectations in wake of action against Capital One.

July 25, 2012

The Consumer Financial Protection Bureau (CFPB) has outlined its expectations for acceptable credit card marketing practices in the wake of its first enforcement action.

Last week, the agency fined Capital One $25 million and ordered the bank to refund $140 million to two million consumers who were misled into buying credit card add-on products such as payment protection, credit monitoring, and access to “credit education specialists.”

CFPB reports that as part of the “high-pressure tactics” Capital One used to sell these add-ons, consumers were:

►Misled about the benefits of the products. Consumers were led to believe the products would improve their credit scores and help them increase their credit limits.

►Deceived about the nature of the products. Consumers weren’t always told that buying the products was optional. In other cases, consumers were misinformed that they were required to purchase the product to receive full information about it, but they could cancel the product if they weren’t satisfied.

Many of these consumers later had difficulty canceling when they called to do so.

►Misled about eligibility. Although most of the payment protection benefits kicked in when consumers became disabled or unemployed, call center representatives marketed and sold the product to unemployed and disabled consumers whose claims would inevitably be denied.

►Misinformed about the cost. Consumers were led to believe they would be enrolling in a free product when that wasn’t the case.

►Enrolled without their consent. Consumers were automatically billed for products and often had trouble cancelling them.

Agency expectations

The CFPB says institutions it supervises should market and sell credit card add-on products in a manner that limits the potential for statutory or regulatory violations and harm to consumers.

They should ensure that:

  • Marketing materials—including direct-mail promotions, telemarketing scripts, Internet and print ads, radio recordings, and television commercials—reflect the actual terms and conditions of the product and aren’t deceptive or misleading;
  • Employee incentive or compensation programs tied to the sale and marketing of add-on products adhere to institution-specific program guidelines and don’t create incentives for employees to provide inaccurate information about the products;
  • Telemarketers and customer service representatives accurately state the terms and conditions of the various products, including limitations on eligibility for benefits;
  • Customers aren’t enrolled in programs without providing their clear consent after being informed about terms and conditions;
  • Applicants aren’t required to purchase add-on products as a condition of obtaining credit;
  • Cancelation requests are handled in a manner that’s consistent with the product’s terms and conditions without being misleading;
  • Written policies and procedures exist that ensure compliance with applicable federal and state consumer protection laws;
  • There’s oversight of any affiliates or third-party service providers that perform marketing or other functions related to credit card add-on products. This includes audits, quality assurance reviews, training, and compensation structure;
  • There’s an appropriate channel for receiving, investigating, and resolving consumer complaints related to add-on products; and
  • There’s a comprehensive training program for employees involved in the marketing, sale, and operation of credit card add-on products.

The CFPB considers these factors in evaluating the effectiveness of disclosures:

  • Is the statement prominent enough for the consumer to notice?
  • Is the information presented in an easy-to-understand format that doesn’t contradict other information and at a time when the consumer’s attention isn’t elsewhere?
  • Is the information in a location where consumers can be expected to find it?
  • Is the information in close proximity to the claim it qualifies?

Click here for the full text of the CFPB’s consent order [pdf]