In recent months, a number of lenders have had to radically change the way in which they market certain products for credit cards following a massive settlement by one major issuer. Now another such agreement has been reached with a different institution.
Discover Bank, the credit card issuing arm of Discover Financial Services, recently struck a deal with the U.S. Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau to settle a case related to its marketing of credit protection services by phone, the company announced. The agreement will see the company provide refunds totaling roughly $200 million to cardholders who purchased credit protection as a result of Discover’s marketing by phone. If you might have purchased one of these products, you don’t have to do anything in order to receive our refund. The company will be handling refunds automatically.
The agreement also calls for the company to make “certain enhancements” to its telemarketing practices, the report said. Further, the company will pay $14 million in civil penalties to the CFPB and FDIC.
“We have worked hard to earn the loyalty of our cardmembers, and we are committed to marketing our products responsibly,” said David Nelms, chairman and CEO of Discover. “As always, we will continue to strive to deliver the highest standards of customer service and satisfaction.”
These credit card services involved consumers paying a flat fee every month to the lender, and in return they would receive protection if they ran into financial trouble as a result of certain hardships, the report said. However, these have often been criticized for being too costly, marketed too aggressively to consumers, and providing only minimal help to those who need it. Often, this protection only covered the minimum payment on a monthly credit card bill, for a relatively short period of time, and therefore could lead to significant amounts of debt to be added to the account if there is a prolonged period of financial distress.
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Already, a number of lenders have changed their marketing practices when it comes to these kinds of credit protection, and some have discontinued offering them altogether. These decisions come just a few months after Capital One Financial reached a massive agreement with the CFPB and the U.S. Office of the Comptroller of the Currency for $165 million, including $140 million in refunds to borrowers who purchased the credit protection plans as a result of this marketing.
Image: Philip Taylor PT, via Flickr