Discover Financial is the latest credit card company to announce a consumer settlement in light of charges regarding their high-profit, low-payout credit card payment protection plan, according to a recent investigation.
An investigation into Discover Bank’s marketing practices was conducted by both the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation. These organizations conducted investigation even after receiving $14 million payments from the bank and the investigation includes these payments as well as refunds on the $200 million in consumer-purchased opt-in add-on credit card products, for a total of more than $214 million due to consumers who bought into additional Discover credit card services.
The consumer add-ons were, mainly, payment protection plans offered consumers as a kind of insurance in the event of unemployment or illness/injury that affects a consumer’s ability to continue making payments. It is actually a service that is common to most credit card companies in the United States even though they critics often regard them as expensive. At 80 cents on the dollar per month for every $100 in credit card covered, these plans are a bit costly but rarely deliver on the promise because of all the rules and exclusions provided in the program. However, the Governmental Accountability Office issued a report in 2011 that showed the nine largest credit card issuers collected a total of $2.4 billion in debt protection fees. If that number alone is not alarm enough consider that 55 percent of that was profit (that’s $1.3 billion).
David Nelms, chairman and chief executive officer of Discover said, in a press release on Friday,
We have worked hard to earn the loyalty of our card members, and we are committed to marketing our products responsibly. As always, we will continue to strive to deliver the highest standards of customer service and satisfaction.
Obviously, this does not appear to be the case, so Discover has their proverbial work cut out for them. Considering that they are only the second high-end credit card issuing bank to announce such a settlement, this could be a tough go. With Capital One Bank agreeing to pay $210 million in penalties and restitution, though, Discover’s settlement is easily the largest instance of rectifying over a settlement regarding high-pressure sales and deceptive marketing tactics. Because of these findings, though, many other banks have either altered their payment protection plans or have dropped them altogether.
Richard Cordray is the directory of the Consumer Financial Protection Bureau, an establishment whose sole job is to make sure consumers’ best interests are always served, particularly by large companies like credit card issuing banks. He said, in statement,
We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.
So far, neither of the federal agencies involved with the Discover settlement have responded to this statement.
Discover Financial Services, the parent company of Discover Bank (who issues the credit cards) have already dealt with a similar incident. They had already disclosed an existing federal investigation into the marketing practices for their payment protection plans. Their annual report made it known that Discover had made changes to their fee-based products and programs long before this investigation began. The parent company “believes its current business practices substantially address the regulators’ concerns.”
On their website, Discover Financial Services claims
we committed ourselves to meeting the needs of our card-members with the best possible customer service – and we still stand by that commitment today. We’re building our company by listening to consumers and developing products and programs that help them get the most for their money.
Apparently, this is not the case.
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