If you’re one of the 3.5 million customers that Discover Financial Services tricked into purchasing payment protection and other credit card add-on products, the Consumer Financial Protection Bureau has some good news for you. After wrapping up a lengthy investigation last Monday, the CFPB has announced that it will be forcing Discover to refund its disenfranchised cardholders to the tune of $200 million.
“People deserve to be treated fairly by their financial institutions,” CFPB director Richard Cordray told the Washington Post. “We will continue to work toward that goal with great determination.”
Discover has been under fire for the methods it has been using to market its add-on products since 2009. Most notoriously, the company used call center agents to trick customers into enrolling in payment-protection plans without their consent. An investigation found that Discover provided scripts to its telemarketers that exaggerated the benefits of products and suggested that customers would not be charged until they had reviewed and signed written paperwork consenting to enrollment.
Often, these materials weren’t provided until Discover had already charged the customer for services rendered. Consequently, a federal investigation found that the scripts “failed to disclose material terms and conditions” of many of Discover’s add-on products. They also found that Discover’s call center agents deliberately rushed through the mandatory disclosure portions of their sales calls.
“The agencies jointly determined that Discover engaged in deceptive telemarketing tactics to sell the company’s credit card add-on products,” said the Federal Deposit Insurance Corp. and the CFPB in a joint statement. They went on to add that “Payment Protection was [deceptively] marketed as a product that allows consumers to put their payments on hold for up to two years in the event of unemployment, hospitalization, or other qualifying life events.”
As part of its settlement with the CFPB, Discover must stop all of the practices in question immediately. It must also pay a $14 million fine to the CFPB and the Federal Deposit Insurance Corp. and will have to submit to an independent audit. Additionally, all of the customers who enrolled in credit card add-on services between December 2007 and August 2011 will be reimbursed for 90 days of fees, which averages out to roughly $56 per customer.
Anyone who was duped by Discover should expect to see a credit on their card statement in the next few months. If you no longer have an account with the credit card provider, you should be receiving a check through the mail by the end of the year.
This may be a small victory for consumers, but it’s an important one. Add-on products like Payment Protection, Credit Score Tracker and Identity Protection exist only to squeeze money out of unwitting cardholders, and while Discover wasn’t the only company pushing these products (Capital One was recently convicted and fined for the same thing), it was one of the worst offenders. Though the company may not be shuttered for its deceptive practices, it won’t be deliberately misleading people about these services any longer. The CFPB officially made the credit card industry a little bit safer – and for that, we tip our hats to them.