The Consumer Financial Protection Bureau (“CFPB”) entered into its first enforcement action consent decree with Capital One Bank ordering Capital One to pay in excess of $210 million which includes settlement of an Office of Comptroller of the Currency proceeding as well. Approximately $140 million of this sum consists of direct payments to affected consumers who were subject to deceptive trade practices by Capital One and its telemarketing vendors. The remaining $70 million consists of fines and penalties. The $140 million is the estimated total of payments made by all consumers who were telemarketed the products or convinced not to terminate the products by telemarketing. The consent decree required returning all payments made by these customers since August 1, 2010.
While Capital One’s credit cards operation was the entity subject to the enforcement action, the CFPB’s action has implications for auto dealers as it dealt with a familiar practice: marketing aftermarket products to consumers.
The CFPB claimed that Capital One and its telemarketing vendors used certain deceptive marketing practices to pressure or mislead consumers into paying for “add-on” products such as payment protection and credit monitoring services. Among the deceptive trade practices specifically cited by the CFPB included:
- Misleading consumers about the benefits of the products – for instance that the product would improve credit scores when that was inaccurate;
- Deceiving consumers about the nature of the products – the CFPB claims some consumers were told the products could be cancelled, while canceling was difficult to accomplish;
- Taking orders from ineligible consumers and then denying claims later based upon eligibility;
- Leading consumers to believe the products were free when they were not; and
- Enrolling consumers without the consumer’s express consent
Credit life, disability and loss of income insurance along with identity theft protection were among the products deceptively marketed to consumers. The CFPB set forth guidelines for marketing aftermarket products that auto dealers should note carefully for your F&I presentations.
The CFPB considers the following factors in evaluating the effectiveness of disclosures at preventing consumers from being misled, including where disclosures relate to aftermarket products:
- Is the statement prominent enough for the consumer to notice?
- Is the information presented in an easy-to-understand format that does not contradict other information in the package and at a time when the consumer’s attention is not distracted elsewhere?
- Is the information in a location where consumers can be expected to look or hear?
- Is the information in close proximity to the claim it qualifies?
The CFPB went on to state that employee incentive or compensation programs tied to the sale and marketing of add-on products require adherence to specific program guidelines and should not create incentives for employees to provide inaccurate information about the products.
In terms of the interaction with consumers, the CFPB made clear that the creditor (read dealer) give clear guidance to its employees as to the wording and appropriate use of rebuttal language and any limits on the number of times that the representative may attempt to rebut the consumer’s request for additional information or to decline the product. Where applicable, you should make clear to consumers that the purchase of add-on products is not required as a condition of obtaining credit.
Finally, the CFPB indicated the following procedures should be put in place to monitor the sales of aftermarket products:
- Written policies and procedures governing add-on products designed to ensure compliance with prohibitions against deceptive acts and practices, TILA, ECOA, and any other applicable federal and state consumer financial protection laws and regulations;
- A system of periodic quality assurance reviews, the scope of which includes, but is not limited to, reviews of training materials and scripts, as well as real-time monitoring and recording of presentations in their entirety, consistent with applicable laws;
- Independent audits of the add-on programs, which address the items listed above and consider whether these programs present elevated risks of harming consumers;
- An appropriate channel for receiving, investigating, and properly resolving consumer complaints related to add-on products; and
- A comprehensive training program for employees involved in the marketing, sale, and operation of add-on products
Consider taking a look at your aftermarket selling in view of these mandates. The CFPB and Federal Trade Commission (“FTC”) work together in making consumer protection rules. The CFPB is also taking complaints against auto credit activities, complaints similar to the ones against Capital One that started this enforcement action.