Accounts receivable management covers a broad scope of financial institutions, practices and regulations, thus it was not surprising that in the U.S. the newly created, controversial and ,as yet, not totally staffed Consumer Financial Protection Bureau (CFPB) as one of its first acts has turned its attention to the practices of credit card issuers. In its recently released bulletin, CFPB Bulletin 2012-06 it puts the credit card sector, and those wishing to provide such services, that deceptive practices for selling “add-on” products will not be tolerated.
You have been warned
As the bulletin states:
Credit card issuers market various “add-on” products to card users, including debt protection, identity theft protection, credit score tracking, and other products that are supplementary to the credit provided by the card itself. This bulletin outlines the Consumer Financial Protection Bureau’s (“CFPB” or “the Bureau”) expectation that institutions under its supervision and their service providers offer such products in compliance with Federal consumer financial law. The CFPB will take all necessary steps to ensure that consumers are protected from deceptive sales and marketing practices, including those resulting from failures to adequately disclose important product terms and conditions, or other violations of Federal consumer financial law.
The bulletin goes on to say that it already is receiving complains about deceptive marketing. Just to name a few, these have included:
- Failure to adequately disclose important product terms and conditions
- Enrollment in programs without customer affirmative consent, or without realizing that they have been enrolled or are required to pay for the programs
- Billed for services that were not performed or activated
Applicable consumer protections
The bulletin enumerates the various laws that govern such practices and the sections of the law that apply. The list is actually quite comprehensive, and it very specific about what is against the law. It includes:
- The Dodd –Frank Act Prohibition Against Deceptive Practices: This defines what is a deceptive practice.
- Truth in Lending Act/Regulation Z : The rules regarding account-opening disclosures and periodic statement obligations charge card application and solicitation disclosures.
- Equal Credit Opportunity Act/Regulations B: Stipulating creditors may not discriminate based on race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract).
It goes on to state their expectations, noting that: “Institutions supervised by the CFPB should take steps to ensure that they market and sell credit card add-on products in a manner that limits the potential for statutory or regulatory violations and related consumer harm.” What then follows is an extensive list of what is to be taken as acceptable marketing behavior and the need to develop specific compliance management programs.
This is serious, just ask Capitol One
How serious is the CFPB about this? The answer has already come.
The CFPB this week ordered Capital One (News - Alert) Financial Corp. to reimburse $150 million to more than 2 million consumers who were in fact duped into purchasing credit-card products they didn’t need or understand. Capitol One also was fined $60 million to settle “deceptive marketing tactics.” The fines include a $25 million civil penalty that is the CFPB’s first enforcement action. The Office of the Comptroller of Currency is to get $35 million in penalties.
The fines were the result of a finding that Capital One’s third-party call-center vendors were over-aggressive by pushing individuals with low credit scores or low credit limits into add-on products when they called contacted the customer service to activate new credit cards.
Not uncharacteristically Capital One blamed the vendors who “did not always adhere to company sales scripts and sales policies” and apologized to consumers. And, backing up the tough wording in the bulletin, CFPB director Richard Cordray said, “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”
Opportunity for ARM (News - Alert) service providers
For those providing accounts receivable management products and services, this appears to create a significant market opportunity, especially in the area of helping credit card issuers deal with the establishment and execution of compliance programs. As spelled out in the laws that apply here, especially Dodd-Frank, there is a lot to comply with and clearly being able to monitor compliance and remediate the risks of being in non-compliance is a place where technology is going to be critical.
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Edited by Brooke Neuman