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Financial Services Law Insights and Observations

CFPB Announces First Public Enforcement Action; Issues Related Compliance Bulletin

Credit Cards CFPB OCC Enforcement Ancillary Products

Consumer Finance

On July 18, the CFPB announced its first public enforcement action - a Consent Order entered into by a major credit card issuer to resolve allegations that the issuer’s vendors deceptively marketed ancillary products such as payment protection and credit monitoring. The OCC made a corresponding enforcement announcement and released a Cease and Desist Order and Civil Money Penalty to resolve related charges. Under the CFPB order, the issuer will refund approximately $140 million to roughly two million customers, and will pay a $25 million penalty. The OCC order requires restitution of approximately $150 million (of which $140 million overlaps with the CFPB order) and an additional $35 million civil money penalty. Under both agencies’ actions, the issuer is prohibited from selling and marketing certain ancillary products until it obtains approval to do so from the regulators, and the issuer must take specific actions to enhance compliance with consumer financial laws.

Concurrently, the CFPB issued Bulletin 2012-06, which states that the CFPB expects supervised institutions and their vendors to offer ancillary products in compliance with federal consumer financial laws. The guidance cites “CFPB supervisory experience [that] indicates that some credit card issuers have employed deceptive promotional practices when marketing” such products, including (i) failing to adequately disclose terms and conditions, (ii) enrolling customers without their consent, and (iii) billing for services not performed. The Bulletin reviews applicable federal law and outlines the compliance program components that the CFPB expects supervised institutions to maintain.

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