• CFPB Flexes Enforcement Authority
  • July 30, 2012 | Author: Neal C. Wise
  • Law Firm: Jones Walker LLP - Jackson Office
  • Since the passage of Dodd-Frank in 2010, the financial industry has been bracing for the newly established Consumer Financial Protection Bureau’s (the "CFPB") first enforcement action. The new agency did not disappoint. On July 18, 2012, the CFPB issued its initial enforcement action against one of the country's largest banks with a staggering $210 million consent order in restitution and penalties for what the agency identified as deceptive marketing practices in connection with the bank's credit card add-on products.

    According to the consent order, the bank's call-center vendors used deceptive tactics to sell credit-card add on products including payment protections-which grant customers limited amounts of debt forgiveness under certain circumstances-and credit monitoring services such as identity-theft protection and credit counseling. The CFPB alleged the bank used high-pressure tactics when speaking with customers that misled the customers as to the nature, benefits, or costs of these products, all in violation of unfair, deceptive, or abusive acts and practices ("UDAAP") standards the CFPB is charged with administering.

    The bank, which neither admitted nor denied the charges, agreed to pay $150 million in restitution to these customers as well as fines of $25 million and $35 million to the CFPB and Office of the Comptroller of the Currency, respectively. The size of the fines nearly triples the reported record-setting $22.5 million fine to be levied against Google by the Federal Trade Commission for unfair and deceptive practices in connection with circumventing cookie privacy settings in Apple’s Safari web browser.

    The consent order outlined in unusual detail very specific fact findings about the bank's business practices by the CFPB, which could signal that the agency is trying to send a clear message to other institutions about what practices will and will not be tolerated. Under the consent order, the bank has agreed to stop all marketing of the credit card add-ons at issue until the CFPB has approved a compliance plan, which must include allowing customers to immediately cancel a product if they indicate their desire to do so.

    Due to its length and unusual detail, financial institutions would be well-advised to read the consent order closely, identify their own practices that may contain risks similar to what landed this bank in trouble, and evaluate what measures should be taken.