Credit Card Issuers Forced by CFPB to Refund Cardholders
The Consumer Financial Protection Bureau (CFPB) was created to protect consumers from illegal and unfair practices in the financial marketplace. It was one of many actions made by Congress to prevent another financial crisis akin to what happened in 2008.
Since the bureau began operating in 2011, it has brought major legal action against credit card issuers for unfair marketing, billing, and collection practices. The CFPB has required many major credit card issuers to refund millions of dollars to cardholders, citing a variety of violations. Here are some of the major companies that have been forced to refund customers since 2012.
Citibank encountered an error in 2017 that necessitated that the bank refund around 1.75 million accounts. The refunds, paid out in 2018, averaged around $190 per account and totaled roughly $335 million.
The review was required under the 2011 CARD Act, which mandates that credit card issuers conduct semi-annual reviews of customer accounts whose interest rates had gone up due to missed payments or other issues. These reviews are meant to ensure that banks lower those rates after the customer returns to good standing. Citibank, however, discovered that many customers were overdue for having their rates lowered.
No additional fines were levied by the CFPB since Citibank voluntarily reported its findings.
In July 2015, Citibank was ordered to refund $700 million to 8.8 million cardholders who were victims of deceptive marketing, unfair billing, and unfair collection practices related to credit card add-on services and expedited payment fees.
In a press release, the CFPB reported that Citi and a subsidiary deceptively marketed products with a 30-day free trial, failed to properly disclose credit monitoring benefits, enrolled cardholders without explicit authorization, and neglected to alert cardholders when they were ineligible to receive the services.
Citi also had to refund cardholders who were unfairly charged an expedited payment fee. The CFPB said Citi charged cardholders without informing them of the true purpose of the fee or giving them no-fee options for making payment.
Citibank was required to reimburse all affected cardholders (no action was required for cardholders to receive their refund), end all unfair billing and illegal practices, and pay $70 million in penalties to the CFPB and the Office of the Comptroller of the Currency (OCC).
In September 2014, U.S. Bank was ordered to refund $48 million to consumers who suffered because of illegal billing practices related to add-on products for credit cards and other bank products.
Cardholders were billed for credit monitoring products before the bank obtained written authorization. According to the CFPB, credit monitoring services were, in some cases, not performed at all or were not being performed completely while cardholders paid for these services for several years. In some cases, fees for the services caused cardholders to exceed their credit limits or to be charged unfair interest.
U.S. Bank did not provide the credit monitoring services directly, but referred interested customers to a third-party company, Affinion. The bank ended its relationship with Affinion in 2012 after learning about the issues with billing and services.
The CFPB required U.S. Bank to stop unfair billing practices and refund a full $48 million to more than 420,000 customers who enrolled in credit monitoring. U.S. Bank also had to pay a $5 million penalty to the CFPB's Civil Penalty Fund and a $4 million penalty to the OCC.
GE Capital (Synchrony Bank)
In June 2014, the CFPB ordered GE Capital Retail Bank to pay $225 million to customers who were victims of deceptive marketing of its add-on debt hardship products and discriminatory credit card practices for settlements on delinquent accounts.
In marketing its add-on debt cancellation products, GE Capital deceived customers about the service pricing, eligibility, and the time frame for enrolling. GE Capital had to refund $56 million to consumers affected by this practice.
Further, GE Capital failed to extend its debt cancellation services to customers who indicated they speak Spanish or who had addresses in Puerto Rico. This practice was a violation of the Equal Credit Opportunity Act which prohibits creditors from discriminating against customers based on national origin. GE Capital is required to refund $169 million to the customers who were victims of this discrimination.
Additionally, the CFPB required GE Capital, which changed its name to Synchrony Bank, to pay a $3.5 million fine.
Bank of America
In April 2014, Bank of America was ordered to refund $727 million to consumers who were victims of deceptive marketing and unfair billing practices for the card's payment protection and credit monitoring services.
For about two years, Bank of America representatives marketed credit card payment protection services to cardholders with an initial 30-day free period. However, the company started charging cardholders right away. Cardholders were enrolled in services immediately, despite only agreeing to receive additional information. Finally, Bank of America telemarketers misrepresented the benefits of the payment protection services.
In addition to misleading customers about payment protection services, Bank of America unfairly charged cardholders for its identity protection services. In this case, cardholders were billed for the credit monitoring services before the services actually began. Some cardholders were charged interest on the unfairly billed services and others incurred a fee for exceeding their credit limits.
In addition to the $727 million in refunds to consumers, Bank of America was required to pay civil penalties of $20 million to the CFPB and $25 million to the OCC.
GE Capital Retail
In December 2013, GE Capital Retail was required to refund $34.1 million to cardholders who signed up for its CareCredit healthcare credit card after being deceived about the interest-free promotion. Patients signed up for the CareCredit credit card in various medical service providers' offices to help fund health care costs not covered by insurance. Customers were pitched an interest-free repayment plan, when, in fact, they were signing up for a deferred interest plan, one that charges full interest if the balance isn't repaid in full by a certain time.
Other patients were unaware they were signing up for a credit card. They instead believed they were working out an in-house repayment plan with their service provider. As such, many patients were not given the proper credit card disclosures.
Also in December 2013, American Express was ordered to refund $59.5 million to cardholders for illegal credit card practices including deceptive marketing and unfair billing for add-on products like payment protection and credit monitoring.
Cardholders were led to believe their payment protection services would provide a bigger financial benefit for a longer period than was actually provided. The payment protection product was supposed to be free for balances repaid by a certain time. Customers believed this date was the regular payment due date when it was actually the billing cycle end date, which proceeds the payment due date.
AmEx also failed to fully alert customers, particularly those located in Puerto Rico, about the terms and conditions of its Lost Wallet product, which was meant to assist in canceling and replacing lost or stolen cards.
In regard to its identity theft protection services, AmEx began charging customers for the service before the enrollment process was complete. The company also failed to inform cardholders of all the steps necessary to receive all the benefits. Therefore, customers were paying for benefits they did not receive. In some cases, the fees caused cardholders to exceed their credit limits and be charged additional interest and fees.
Since the identity theft protection services included a free credit report offer, AmEx was supposed to inform customers of their federal right to a free credit report. The company did not consistently make this disclosure, however.
In this action, American Express was also required to pay a $9.6 million civil penalty to the CFPB.
In September 2013, Chase Bank and JP Morgan Chase were ordered to refund $309 million to cardholders who were unfairly charged for certain add-on products. From 2005 to 2012, Chase enrolled cardholders in identity theft production and fraud monitoring services without express written consent from the cardholders. Cardholders were billed before the services began (something that's illegal under the Fair Credit Billing Act) and did not receive full benefits of the services.
Chase also had to pay a $20 million civil penalty to the CFPB and a $60 million penalty to the OCC.
In October 2012, Discover Bank was ordered to refund more than $200 million to 3.5 million consumers who enrolled in the company's payment protection, credit score tracking, or identity theft protection services.
The CFPB says Discover enrolled customers without their consent, misled them about the cost of these services, failed to disclose information about eligibility for benefits, and charged customers before fulfilling its promise to first send details about the products. In addition to refunding customers, Discover also had to pay a $14 million penalty to the CFPB and the Federal Deposit Insurance Corp (FDIC).
In September 2012, American Express was required to refund $85 million to 250,000 cardholders for multiple incidents.
- The bank failed to pay a $300 bonus associated with the American Express Blue Sky credit card.
- Some cardholders were charged excessive late fees.
- They also violated the Equal Credit Opportunity Act by using age as a factor in a credit scoring system while failing to apply the system to applicants over age 35.
- AmEx subsidiaries led some consumers to believe they could improve their credit by paying old debts when the accounts were actually beyond the credit reporting time limit, which is seven years for most kinds of debt. Your credit score isn't influenced by paying debts that are past this reporting limit. The CFPB now requires American Express to notify consumers when they're collecting a debt that is too old to be reported to a credit bureau.
- Some consumers were told they could accept a settlement offer and have their debt forgiven. However, the debts were not actually forgiven, and consumers were later denied an American Express card because of it. To these consumers, AmEx had to pay $100 and send a pre-approved credit card offer. Consumers who already paid a settlement to receive a credit card will receive a refund of that debt paid plus interest.
American Express also had to pay $27.5 million in penalty fees, split among the CFPB, the FDIC, the Federal Reserve, and the OCC.
In July 2012, Capital One was ordered to refund a total of $150 million to approximately 2 million cardholders after the card issuer deceived customers into purchasing certain add-on services, including payment protection plans and credit monitoring.
According to the CFPB, Capital One misled customers about the benefits of the services, failed to inform them that the services were optional, neglected to tell certain consumers they were ineligible to receive the services, misled some to think the services were free, and enrolled others without consent. Additionally, Capital One made it difficult and impossible for some cardholders to cancel services. $10 million of the total refund is owed to customers simply for the bank's failure to implement preventive measures against these abuses.
On top of the $140 million in refunds, Capital One was required to pay a $25 million penalty to the CFPB and a $35 million penalty to the OCC.
Refund Procedures for Affected Cardholders
In each case, refunds were made automatically with no action necessary on the part of affected cardholders. Those who were still customers of the offending credit card issuer should have received a credit to their accounts. Former customers should have received a check in the mail. Contact the credit card issuer directly if you believe you were entitled to a refund but did not receive one.