GE Capital Retail bank must refund hundreds of millions of dollars to customers harmed by what federal authorities said were the financial firm's "illegal and discriminatory" credit card practices.
The company, now called Synchrony Bank, will have to pay roughly $225 million under a legal settlement with the U.S. Justice Department and Consumer Financial Protection Bureau. Of that amount, $169 million will go to some 108,000 Hispanic borrowers who the agencies said were denied debt relief because of their national origin. Another $56 million will be refunded to 638,000 consumers allegedly subjected to deceptive marketing claims.
In announcing the agreement on Thursday, government officials said it represents the largest federal settlement for of credit card discrimination charges.
The Justice Department said that between 2010 and 2012 GE Capital declined to offer two credit card debt-repayment programs to customers who indicated that they preferred to communicate in Spanish or who had a mailing address in Puerto Rico. That violates the Equal Credit Opportunity Act, the government said.
"The blatant discrimination that occurred here is unlawful and will not be tolerated," said Acting Assistant Attorney General Jocelyn Samuels in a statement. "Borrowers have the right to credit card terms that do not differ based on their national origin, and the settlement today sends the message that the Justice Department can and will vigorously enforce the law against lenders who violate that right."
The CFPB also said GE Capital was deceptive in its marketing of products that let users cancel a certain percentage of credit card debt if they become unemployed or disabled, or experienced some other hardship.
Among other things, company telemarketers misled consumers into thinking they wouldn't have to pay for the products as long as they paid their card balance in full. In fact, consumers could only avoid a fee if an account wasn't in use or if a person paid off the balance before GE Capital issued the monthly billing statement. Telemarketers also sold the products to retired or disabled customers even though they were ineligible for certain debt-cancellation benefits.
"These misleading tactics were compounded by the fact that consumers could not review the full terms of these products before enrolling in them, as the transactions occurred over the phone," said CFPB Director Richard Cordray in a statement. "GE Capital has now ended its practice of enrolling consumers for credit card add-on products over the phone, and customers who have not already received remediation will receive it in the coming months."
Synchrony, which was created when General Electric (GE) spun off GE Capital earlier this year, offers a range of credit products.
"When we identified the error though our own internal audit process, we began remediating customers," a GE Capital Retail Bank spokesperson said after the settlement announced. "The vast majority of consumer remediation, consisting of credits to balances that have already been charged off, has already taken place. Our priority is our customers and treating them fairly so when we uncovered the issue we worked to correct it."