Magazine article Risk Management

Credit Card Issuers Face New Scrutiny

Magazine article Risk Management

Credit Card Issuers Face New Scrutiny

Article excerpt

The Consumer Financial Protection Bureau (CFPB) was created in July 2011 to protect consumers in the financial marketplace. As part of its responsibilities, the agency examines credit card issuers to ensure "that consumers are protected from deceptive sales and marketing practices, including those resulting from failures to adequately disclose important terms and conditions or other violations of Federal consumer financial law." The CFPB is particularly concerned about the means through which credit card issuers and services solicit add-on products.

According to the CFPB, there are three situations where deceptive behavior often occurs with regard to credit cards: employing deceptive promotional practices when marketing products (e.g., failing to adequately disclose important product terms and conditions); enrolling consumers in programs without their consent, without their realizing that they were enrolled or without the consumer understanding that they had to pay for the programs; or billing for services that were not performed or activated.

By enforcing certain statutes that govern these behaviors, including the Consumer Financial Protection Act, the Truth in Lending Act, the Equal Credit Opportunity Act and Section 5 of the Federal Trade Commission Act, the CFPB can take action against companies that it determines are misleading consumers. Already in the past year, the CFPB has brought significant actions against three credit card issuers--Discover, American Express and Capital One--that have led to more than $425 million in restitution payments to nearly six million customers and almost $60 million in civil penalties. In each of these matters, the CFPB alleged that the company operated with 1) an inadequate compliance management system; 2) inappropriate supervision by the board of directors and senior management; and 3) without sufficient internal audit systems and internal controls.

The resulting consent orders required all three companies to implement onerous compliance programs that included correcting the violative behavior, implementing compliance management and internal control systems, and instituting board supervision of the compliance efforts. …

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