Feds order credit card company to refund $200M

AP

(CBS/AP) WASHINGTON - Discover Bank will pay millions in fees to settle accusations by U.S. regulators that it pressured credit card customers to buy costly add-on services like payment protection and credit monitoring.

Discover (DFS), the sixth-biggest U.S. credit card issuer, will pay a $14 million fine and refund $200 million directly to more than 3.5 million customers, federal authorities said Monday.

The company's call-center workers enrolled customers in the programs without their consent, misled them about the benefits and left customers thinking the products were free, regulators said.

"The agencies jointly determined that Discover engaged in deceptive telemarketing tactics to sell the company's credit card add-on products," the FDIC and Consumer Financial Protection Bureau, which brought the action against Discover, said in a joint statement announcing the settlement. "Payment Protection was 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. Discover also sold its Credit Score Tracker, designed to allow a customer unlimited access to his or her credit reports and credit score."

Discover also improperly marketed products to help consumers cancel credit cards if their wallets were stolen and to protect them against identity theft.

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Discover, part of Discover Financial Services, said this summer that it expected an enforcement action about add-on products. Under the settlement, the company neither admitted nor denied the allegations. 

"We have worked hard to earn the loyalty of our cardmembers, and we are committed to marketing our products responsibly," said David Nelms, CEO of Discover, said late Friday in a statement regarding the federal settlement. "As always, we will continue to strive to deliver the highest standards of customer service and satisfaction."

It is only the third public enforcement action by the consumer bureau, which was created under the 2010 financial overhaul law to protect consumers from excessive or hidden fees and other financial threats. The first was a similar order against Capital One (COF), another big issuer of cards.

American Express (AXP) also expects to pay refunds and fines related to add-on products, according to its most recent quarterly filing with regulators.

Discover's telemarketing scripts included misleading language that confused consumers about whether they were buying a product or just agreeing to consider it, the agencies said. They said telemarketers spoke quickly during the part of the call where the prices and terms of products are described.

The order mentions four products sold by Discover: Payment Protection, Credit Score Tracker, Identity Theft Protection and Wallet Protection. Anyone who paid for those services between Dec. 1, 2007, and Aug. 31, 2011, will be repaid at least 90 days' worth of fees. About 2 million customers will be repaid all of the fees they were charged.

In addition to the refunds and fine, Discover agreed to change its telemarketing approach and employ an independent auditor to oversee its compliance with the order.

[Michael_Dwells]

It's disappointing to hear about big companies caught misleading their customers. I've read a complaint against Discover bank at http://www.callercenter.com before but I thought it's probably just a simple misunderstanding between the customer and the bank. But having read this article, I guess the customer had a basis for his complaint after all.

[jeannutson]

The unscrupulous behaviors of many banks and financial institutions seems to be on the sharp rise and becoming widespread requiring a much more vigilant and active regulatory and monitoring mechanism to keep them in check to try to prevent such acts even before they occur.

[marcie10000]

Thank you U.S. Dept of Justice. Thank you Obama Administration. This, along with the other banking and credit protections under the Obama presidency, offer the middle class consumer a fair shake!

[Eurovisionacts]

Be an EDUCATED consumer. I noticed this happened with one of my old cards, and i filed a notice with my states better business bureau. Within a few days, someone called and offered to credit everything I paid for it + $100 amazon gift card.

People need to be vigilant and punish companies who use sneaky tricks.

I currently have a PNC bank checking account. No fees, no hassles, free ATM withdrawals (up to $10 a month), plus free checks.

Shop around, find what works for you. Don't be lazy and always say no to any product they try to push you.

[RetiredArmy_Nurse]

Hmmm,...and the republicans do not want government oversight, regulations, nor interference in corporate doings? I think I fell prey to this a couple of years ago when Discover sold me some kind of package unbeknownst to me until I got the bill for it. When I called to complain, they canceled it, but refused to refund what they charged for a month of my non-usage of it.

[RetiredArmy_Nurse]

Yep, vsmit has proven himself to be quite intellectually challenged.

[ajk_cbsnews]

Absolutely, shocking!

[Jaylah54200]

"Discover (DFS), the sixth-biggest U.S. credit card issuer, will pay a $14 million fine and refund $200 million directly to more than 3.5 million customers..."

So each of those 3.5 million customers will be getting a roughly $57 million refund?

[hypnotoad72]

$57 refund is hardly a refund (though we all make verbiage gaffes at times... $57 would be too much... $57 is a joke...)

Since customers were misled, a full refund certainly seems a fair solution... the company should have been a bit more ethical to begin with...

[melbatom]

This has little to do with political issues BUT sure has a lot to do with marketing. Most of this occurs because the company involved issue card on a mass scale with little regard for the ones involved. The law of averages makes profit good where there is mass issue BUT that leads to so many that DO NOT understand what they are becoming involved with. POINT: Any offer not CLEARLY stated -- REJECT. That is by mail, telephone or internet. ANY offer by phone or internet I would be very careful about dealing with.

[jumkey]

Politics has everything to do with this. Republicans do not believe in consumer protection laws.

This is what happens in the lawless state the Republicans want to foist on us.

[Kauaiguy]

Not all credit unions are alike. I had a visa with one of my credit unions here in Hawaii. They were charging me a $50.00 fee per year just to have the CC. The problem was the first couple of years, I put less than $200 on the card and with the interest charge plus the fee, I felt that I was getting ripped off.

The end result is that I paid off the card and cancelled it and I went back to an old credit union which I've had since the 60's and guess what?? No YEARLY credit card fees! So be sure to shop around.

[NinthCrusade]

I 'Discovered' how bad these folks were years ago. I'm still paying off their cards & personal credit line. I can't wait to get my little piece of the pie. It's too bad the feds don't crush some more of these rip off credit card outfits.

[hypnotoad72]

Baby steps... there are three conceivable ways to restore ethics and order in such a broken down system... how many people would want at least one of the other two ways? Assuming that thought things through?