Capital One Case Heralds End of Sneaky Fees

Agenda-Setting Financial Insight.
July 19 2012 4:08 PM

Capital One Case Heralds End of Sneaky Fees

103777764
Capital One is paying $210 million to settle charges it duped customers.

Photo by Michael Loccisano/Getty Images

The punishment of Capital One should give banks a little clarity. The U.S. credit card issuer is paying $210 million to settle charges it duped customers. The first enforcement action by the new Consumer Financial Protection Bureau suggests that despite industry fears to the contrary, the watchdog can target dubious innovation without outlawing it. Lenders will have to be creative without being deceptive.

Salespeople at Capital One, according to the watchdog, pushed services onto consumers who were unable to actually use them. While some borrowers unwittingly signed up, others were enrolled without their consent. The offers included payment protection and credit monitoring, which generally provide little added value, even to those customers who are technically eligible. That puts the items into a sort of gray area. They probably aren’t bad enough to ban but nevertheless leave consumer advocates irate.

Advertisement

This might have put the already controversial CFPB, created by Dodd-Frank, in a tough spot. Though it can’t really eliminate such offerings, the bureau surely wants their use minimized. Director Richard Cordray, however, zeroed in on how Capital One was being sneaky. Services that sound more advantageous than they really are tend to be ripe for abuse. They’re an easy way for lenders to squeeze revenue out of gullible consumers without incurring much cost.

The $210 million payout – $150 million for consumers and $60 million in fines to the CFPB and the Office of the Comptroller of the Currency – should put others on notice. Capital One and its peers will be inclined to direct their sales staffs to exercise prudence with such products. They’re more likely to be peddled to eligible customers and made more clearly understood. That should limit their harm – and the income they generate.

That doesn’t mean financial innovation need be stifled. Rather, the indication from the Capital One charges is that the CFPB intends to shepherd financial institutions to be more upfront with customers. An extra watchdog to sniff out such trickery is welcome. And if the bureau can inspire invention that helps rather than hurts, it could yet turn out to be the U.S. consumer’s best friend.

Read more at Reuters Breakingviews.

Daniel Indiviglio is a Reuters Breakingviews columnist, based in Washington, where he covers the intersection of politics and business. He joined from The Atlantic, where he provided analysis on topics such as financial regulation, housing finance policy, the Treasury, and the Fed.

TODAY IN SLATE

Politics

Talking White

Black people’s disdain for “proper English” and academic achievement is a myth.

Hong Kong’s Protesters Are Ridiculously Polite. That’s What Scares Beijing So Much.

The One Fact About Ebola That Should Calm You: It Spreads Slowly

Operation Backbone

How White Boy Rick, a legendary Detroit cocaine dealer, helped the FBI uncover brazen police corruption.

A Jaw-Dropping Political Ad Aimed at Young Women, Apparently

The XX Factor
Oct. 1 2014 4:05 PM Today in GOP Outreach to Women: You Broads Like Wedding Dresses, Right?
Music

How Even an Old Hipster Can Age Gracefully

On their new albums, Leonard Cohen, Robert Plant, and Loudon Wainwright III show three ways.

How Tattoo Parlors Became the Barber Shops of Hipster Neighborhoods

This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century

Moneybox
Oct. 1 2014 8:34 AM This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century To undertake a massively ambitious energy project, you don’t need the government anymore.
  News & Politics
Politics
Oct. 1 2014 7:26 PM Talking White Black people’s disdain for “proper English” and academic achievement is a myth.
  Business
Buy a Small Business
Oct. 1 2014 11:48 PM Inking the Deal Why tattoo parlors are a great small-business bet.
  Life
Outward
Oct. 1 2014 6:02 PM Facebook Relaxes Its “Real Name” Policy; Drag Queens Celebrate
  Double X
The XX Factor
Oct. 1 2014 5:11 PM Celebrity Feminist Identification Has Reached Peak Meaninglessness
  Slate Plus
Behind the Scenes
Oct. 1 2014 3:24 PM Revelry (and Business) at Mohonk Photos and highlights from Slate’s annual retreat.
  Arts
Brow Beat
Oct. 1 2014 9:39 PM Tom Cruise Dies Over and Over Again in This Edge of Tomorrow Supercut
  Technology
Future Tense
Oct. 1 2014 6:59 PM EU’s Next Digital Commissioner Thinks Keeping Nude Celeb Photos in the Cloud Is “Stupid”
  Health & Science
Science
Oct. 1 2014 4:03 PM Does the Earth Really Have a “Hum”? Yes, but probably not the one you’re thinking.
  Sports
Sports Nut
Oct. 1 2014 5:19 PM Bunt-a-Palooza! How bad was the Kansas City Royals’ bunt-all-the-time strategy in the American League wild-card game?