Capital One repays consumers to end card probe

— -- A group of consumers with a Capital One credit card who paid for costly add-on services will receive refunds, according to actions announced today by the government's consumer watchdog agency.

The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency said Wednesday that Capital One Bank is required to refund about $150 million to 2.5 million customers and pay an additional $60 million in penalties.

The regulators charged that Capital One engaged in deceptive marketing tactics to pressure or mislead some consumers into buying payment protection plans and credit monitoring services when they activated their credit cards.

Customers are to begin receiving refunds later this year.

The Office of the Comptroller of the Currency said it issued a $35 million civil money penalty against Capital One Bank for violations of the Federal Trade Commission Act. The Consumer Financial Protection Bureau, set up a year ago to protect consumers from excessive or hidden fees and other financial threats, issued an addition $25 million penalty.

"Consumers deserve to be treated fairly by their credit card issuer," said Richard Cordray, director of the Consumer Financial Protection Bureau. He said the problems are not isolated at Capital One and said he expects announcements about other companies.

The Comptroller of the Currency order requires Capital One to stop the sales of these products.

Regulators said refunds would go to several groups of consumers enrolled in debt cancellation and credit and identity monitoring products that Capital One and its vendors marketed and sold. The bank would reimburse the full amount of the fees paid and associated over-the-limit fees and finance charges.

Consumers with low credit scores were often targeted with these pitches, according to regulators.

Customers were transferred to the call centers when they phoned to activate their credit cards, the order said. For most customers, that meant a 2-minute process without any ads for extra products. But people with subprime cards or lower credit limits endured 8-minute pitches from live operators while they waiting for the card to be activated.

The financial services watchdog agency said consumers sometimes were led to believe that the products would improve their credit scores and help them get a larger limit on their Capital One credit card.

The consumer financial bureau said in its statement that some call center vendors processed the extra-fee products without consumers' consent. They were automatically billed for the services and often had trouble canceling the product when they called.

Banks are pushing the extra services as they scramble to replace profits lost because of recent limits on fees they can charge and how cards can be marketed. Industry officials argue that the limits encourage banks to come up with increasingly obscure, difficult-to-detect ways of charging customers.

Enforcement chief Kent Markus of the Consumer Financial Protection Bureau said the agency wants to "make it more costly to violate the law than to comply with it."

The bureau's action was notable for requiring automatic refunds to consumers who allegedly were duped — a simple process compared with the time and paperwork involved in most class-action settlements.