Discover Bank is refunding approximately US$200 million to more than 3.5 million customers under a joint enforcement action by the Federal Deposit Insurance Corp. and the Consumer Finance Protection Bureau. Discover will also pay a $14 million civil money penalty, with half going to the U.S. Treasury and half to the CFPB’s civil penalty fund.
The action is the end result of an investigation launched by FDIC last year, which the CFPB later joined. They were targeting what they described as deceptive telemarketing and sales tactics that Discover used to get consumers to pay for various credit card products, such as payment protection, credit score tracking, identity theft and wallet protection.
The telemarketers would downplay key terms during the call and used scripts that had misleading language about whether the customer would actually be paying for the product. Some consumers thought the products were free because of the use of such words as “benefits.”
Others thought they could review material and decide whether to purchase the product; however, they found themselves charged for the products before receiving the materials. Some customers, the two government entities say, were flat-out enrolled without permission.
Discover’s telemarketers did not disclose eligibility requirements for certain payment protection benefits, according to FDIC and CFPB, such as exclusions for pre-existing medical conditions and certain limitations concerning employment.
Besides paying the refunds and the civil penalty, Discover is required to make changes to its telemarketing strategies for the products involved. The credit card company will submit a compliance plan to the CFPB and FDIC for approval.
Discover declined to provide further details, and the CFPB did not respond to our request for further details.
Part of the Discover Narrative
Discover has worked hard over the past decade or so to reinvent its brand into one of a first class credit card, David Johnson, principal with Strategic Vision, told CRM Buyer. This episode is a setback for the financial institution — perhaps a major one — as it will reawaken perceptions that Discover is not on the same level as Visa or Mastercard or American Express.
“This is not something consumers are likely to forget,” he said. “It will become part of the Discover narrative.”
It will also add to the growing pile of anecdotal evidence that banks and credit cards are not consumer-friendly — a portrayal that emerged during the financial crash of 2009 that has not faded away.
“This is a setback on many levels because it raises suspicions about the Discover brand,” Johnson said.