Discover Bank will pay approximately $200 million in refunds to more than 3.5 million consumers for deceptive marketing practices that misled customers about credit card add-on products, such as payment protection, credit score tracking, identity theft protection, and wallet protection.
The Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau today announced a joint public enforcement action, which in addition to the $200 million in consumer refunds, also requires Discover to pay a $14 million civil penalty.
"It sends a strong message that this kind of bad behavior isn't going to be tolerated," Pamela Banks, senior policy counsel for Consumers Union, the advocacy arm of Consumer Reports said. "The watchdogs are on the job. Consumers can feel good about the fact that someone's out there, helping put a stop to these kinds of rip-offs."
The refunds will go to customers who were charged for one or more of the credit card add-on products from December 2007 through August 2011. If you were a Discover customer who was charged for one or more of the products in that time period, you should receive 90 days worth of the fees you paid. The amount will vary depending on when and how long you paid the fee. Approximately 2 million Discover customers will receive a full refund for the fees that they paid.
Discover's deceptive marketing included telemarketing and sales tactics that misled consumers into paying for the add-on products, according to the FDIC and CFPB. The telemarketing scripts contained misleading language likely to deceive consumers about whether they were actually purchasing a product, and telemarketers also often downplayed key terms and spoke quickly when disclosing the prices and terms of the add-on products.
The Discover credit card add-on products in question included the following:
- Payment Protection: Marketed as a product that allows you to put your payments on hold for up to two years in the event of unemployment, hospitalization, or other qualifying life events.
- Credit Score Tracker: Designed to allow you unlimited access to your credit reports and credit score.
- Identity Theft Protection: Marketed as providing daily credit monitoring.
- Wallet Protection: Sold as a service to help you cancel credit cards in the event that your wallet is stolen.
According to the FDIC and CFPB, Discover's telemarketers also enrolled consumers without their consent, and mislead others about whether they had actually purchased a product. In addition, Discover's telemarketers typically did not disclose eligibility requirements for certain payment protection benefits, such as exclusions for pre-existing medical conditions and limitations concerning employment.
In July, Capital One was fined millions for deceptive marketing tactics that pressured or misled its credit-card customers into paying for add-on products. It was the CFPB's first enforcement action, and was taken in coordination with the Office of the Comptroller of the Currency, which also slapped Capital One with a $35 million fine.
To pick the right credit card for your spending habits, read our credit card buying guide, which also includes common credit card gotchas to by wary of. We've also analyzed credit-monitoring and ID-theft protection products, many marketed by banks, and found that they provide questionable value.
Joint FDIC and CFPB consent order with Discover (pdf) [CFPB]
Discover Credit Card Ordered to Pay $200 Million Consumer Refund for Deceptive Marketing [Consumers Union]