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Corporate Counsel Connect collection

August/September 2012 Edition

CFPB action against Capital One stresses the need to regulate sales culture

Jeremy Byellin J.D.

 Jeremy ByellinIn case anyone was wondering up to this point if the Consumer Financial Protection Bureau (CFPB) was actually going to do anything, that question should now be answered.

On July 18, the CFPB assessed a $210 million penalty against Capital One Bank for "deceptive marketing tactics."

I covered the CFPB in a post on WestlawInsider last October, but the quick and dirty version is that it is an independent regulatory agency within the Federal Reserve System created by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The CFPB took over enforcement responsibility for several federal laws, such as the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Truth in Lending Act, and is also responsible for promulgating rules "identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service."

Since the agency is so young yet, no one knows just how powerful it will be, but its action against Capital One is a good example of the CFPB flexing its muscle.

The "deceptive marketing tactics" for which Capital One is facing the penalty is chronicled in the CFPB's consent order.

There were two broad types of products being marketed.

The first related to credit score monitoring and/or identity theft indemnification ("including but not limited to 'Credit Inform', 'Credit Inform Premier', and 'ID Alert').

The second were "Payment Protection" products, which provided twelve months of minimum payments in the event of unemployment or disability, or cancellation of the entire card balance in the event of death.

Many of you have probably faced solicitation for these kinds of products when you called your credit card servicer on an unrelated matter, which is what the order states happened in Capital One's case.

Specifically, when a cardholder would call to activate a new or replacement credit card, if the cardholder fell into either the "subprime" or "prime" categories, they were routed to third-party call-centers that solicited these products.

Representatives at these call centers made a variety of statements that the CFPB order concluded were deceptive:

  • That the products were either free or substantially cheaper than they actually were;
  • That the products would improve the cardholder's credit score and lead to a credit limit increase;
  • That additional information about the products were only obtainable after purchase;
  • That the products were not optional; and
  • Telling unemployed or disabled cardholders that the payment protection product would take effect immediately, when in truth, their current unemployment or disability would not be covered under the plan.

There are several other instances of deception in the order, but you probably get the idea at this point.

Capital One has blamed the practices on the call-centers veering off the scripts provided by the bank. True as this may be, it's still unsurprising that these deceptive practices occurred.


From what I've gathered, these call-center representatives were sales agents, and as such were rewarded based on how many of these products they sold.

As those who've worked in the field can tell you, the sales culture is, shall we say, less than scrupulous.

Because of the nature of sales jobs (short-term, tied directly to performance, etc) it's based not on working towards the good of the company (which is often left footing the bill), but on making the sale at any cost.

Consequently, it's to be expected that many sales agents don't care about the long-term consequences of their words and deeds, as long as they make the sale and are rewarded for it.

CFPB Director Richard Cordray said that "these deceptive tactics are not unique to a single institution," and he's correct.

They've been endemic to the sales industry for a long time and likely contributed to the housing collapse.

However, Cordray has already (literally) put companies "on notice that these deceptive practices are against the law and will not be tolerated."

This warning should not be ignored; the CFPB has already bared its teeth.

Now is the time to rein in your sales force – both in-house and third-party – before you're left with a $210 million tab.

About the Author

Jeremy Byellin is a practicing attorney in the state of Minnesota, and a writer for the Westlaw Insider blog. His articles for the blog cover a wide range of legal topics, with a specific focus on major legal developments and cyberlaw.