Ed's Blog

As we reported in July, the Consumer Financial Protection Bureau's very first enforcement action was a $140 million civil penalty and restitution order against Capital One for tricking credit card customers into buying over-priced, under-performing credit monitoring and debt-cancellation (payment protection) subscription products.

More good news: the Wall Street Journal is reporting (if that link is behind a paywall, try this FoxBusiness link) that Bank of America has stopped selling debt cancellation products, that Citibank is in some sort of timeout and that JP Morgan Chase no longer offers the products to new customers.  

This is good news for consumers. As I said in June when I blogged on an LA Times story by David Lazarus discussing Citibank's alleged deceptive marketing of a similar debt cancellation product: "If these products were any good, people would buy them. Instead, banks bill you for them, even if you didn't order them, didn't intend to pay for them, and didn't actually pay for them," in the sense that you'd taken out your wallet and made a conscious decision to pay by cash, check, debit or credit card. Instead, the bank simply added it to your bill.

In the July stories on the Capital One case, the firm kind-of relucantly said that it sort-of accepted responsibility, but I don't think it actually showed remorse, since it actually put the blame on a third party vendor for not following orders. I doubt that Capital One was ignorant of its vendor's practices, which resulted in lucrative kickbacks, excuse me, commissions to the bank. As I often say, paraphrasing musician James McMurtry's description of his outlaw character Uncle Slayton in his classic song Choctaw Bingo,  "the banks like that money, they don't mind the smell."

As my previous blog reports, even the bank-friendly OCC was forced to acknowledge deceptive sales of these products as far back as 2000, when it reluctantly fined Providian Bank hundreds of millions of dollars only after the San Francisco District Attorney and California Attorney General showed it the way. In now widely quoted memos (San francisco Chronicle, 2002) from Providian's founder Andrew Kahr (who has now reinvented himself as a bank columnist), the "problem is to squeeze out enough revenue and get customers to sit still for the squeeze."

Tricking consumers into buying insurance -- even if you call it a non-insurance debt cancellation product to avoid state insurance laws) -- continued to grow as a highly successful squeeze because the OCC ignored its continued deceptive marketing by other national banks. Now, however, the CFPB is the new cop on the bank beat.

The banks have not indicated that they will stop selling the also-lucrative credit monitoring add-ons (the second violative product in the Capital One enforcement action by CFPB). As my previous blog warned on both types of products:

"Payment protection (debt cancellation) products generally only "promise" to pay your minimum balance, and then only for a year, if you are laid off, disabled, sick or otherwise unable to pay your card. Consumer advocates receive numerous complaints that banks find loopholes or exceptions allowing them to refuse to make even these modest minimum payments in most cases. Payment protection costs a lot but is of little value.

Credit monitoring services are hyped as a defense against identity theft. The only real defense against identity theft is a security freeze (provided as a state law protection). Don't fall for credit monitoring pitches. See CFPB's new fact sheet on mystery credit card fees."