How You Can Benefit From the Capital One Settlement

Before you go, we thought you'd like these...
Capital One
By BETH PINSKER GLADSTONE

NEW YORK, July 18 (Reuters) - The Capital One Financial (COF) settlement with U.S. regulators over deceptive marketing of credit card "add-on products" means a lot to all consumers, not just Capital One customers, according to consumer advocates.

This is the first enforcement action by the Consumer Finance Protection Bureau, which is about to hit its first anniversary. Ed Mierzwinski, consumer program director of advocacy group U.S. PIRG, says it's significant to the future of the agency that this first move was against a big company over a pernicious practice.

"This is a big event for a young agency," he said. "They brought their first action against one of the biggest, most politically active firms, and that will send a clear message that violations of the law will not be tolerated."

Capital One agreed to pay $150 million to reimburse more than 2 million customers who bought aggressively marketed payment protection and credit monitoring services; customers will get a credit on their accounts or a check in the mail.

What does the CFPB action mean for Capital One customers and everyone else?

1. Stronger warnings for consumers about add-on services

The settlement should show consumers that they need to beware of pitches they hear from credit card issuers, especially when activating a card.

The CFPB says Capital One violated regulations that prohibit call-center vendors from engaging in deceptive tactics to sell the company's credit card add-on products, specifically payment protection plans and credit-monitoring services.

First of all, Mierzwinski said, "Consumers should know that credit protection and monitoring are the worst add-on products you can buy."

Travis Plunkett, legislative director of the Consumer Federation of America, is no kinder, referring to these services as "junk products."

The CFPB also issued a warning to consumers on what to watch out for with these products, primarily that you should be wary of any pitch when you are activating a new credit card.

Ryan Schneider, president of Capital One's card business, said, "We are accountable for the actions that vendors take on our behalf. These marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold."

2. Customers will get no-hassle refunds.

Capital One is responsible, with oversight, for determining who is entitled to refunds and will either credit current accounts or mail out checks.

The CFPB emphasizes that ease for consumers is its main concern: "It's been important to make sure that the refunds were managed in a way that was convenient to consumers. Consumers are not required to take any action."

The agency says customers will be reimbursed according to how much they spent, and the settlement is just an estimate of how much it will cost.

An additional $60 million goes into the Civil Penalty Fund, which was created under the Dodd-Frank financial reform law as a reserve to reimburse victims and for consumer education and financial literacy programs.

3. Others might benefit directly, too.

"This settlement is not unique and I expect there to be more activity," CFPB director Richard Cordray said at a press conference on Wednesday.

Plunkett said the deceptive practices that got Capital One in trouble are widespread in the industry. "This is a shot across the bow of all companies selling junk financial products and misleading consumers about them - that they better be more careful. It has direct effect and a hugely significant effect on the whole financial services industry," he said.

While Capital One is the only company currently not allowed to market these add-on credit card products at all - they have to get a plan approved by the CFPB before they can resume - Mierzwinski expects other credit card issuers to stop selling them.

"It would be stupid to continue to market this kind of product," he said.

But Brian Riley, who worked at JPMorgan Chase & Co (JPM), Citigroup Inc (C) and First Union/Wachovia (now Wells Fargo & Co (WFC)) for many years and is now senior research director for the CEB Tower Group, said such practices may be too complicated to unravel because they are already baked into the revenue models for the next three years.

"You can't just unplug it if you're a publicly traded company," he said, adding that some banks may "self-confess" to the CFPB and take their lumps.

4. Other shoes will drop.

Both the CFPB and the Office of the Comptroller of the Currency (OCC), which partnered on the action against Capital One, have web-based complaint systems where consumers can enter information. The CFPB says it will follow up with any Capital One customers who feel they didn't get a refund when they were due one, and also for customers of other banks who feel they've been duped.

9 PHOTOS
The Safest Banks You Can Trust
See Gallery
How You Can Benefit From the Capital One Settlement

BOK (BOKF) is the smallest bank on the list with a $3.8 billion market value and $26 billion in assets. The bank holding company is based in Tulsa, Okla., but its branches operated under several names in other states: Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas and Colorado State Bank and Trust. BOK is worth about 12.5 times earnings and is valued at 1.3 times book value. The return on equity is 11%, and it offers a 2.7% dividend yield to the common holders. Shares are trading around $56.00, and Wall Street analysts have a target above $59.00.

By 24/7 Wall St.

Photo: Les Stockton, Flickr.com

KeyCorp (KEY) is the one exception in our list to our rule about share prices under $10. Its other metrics more than make up for this. It has a market cap of just $7.12 billion against some $87 billion in assets. It operates in 14 states throughout the Rocky Mountain, Northwest, the Great Lakes and Northeast regions. To make its appearance on this list even more impressive, KeyCorp is headquartered is in Cleveland, where a large number of now-troubled loans were issued. The bank has a return on equity of 9.2% and pays out a 2.7% dividend yield. Shares trade around $7.50 but have a target price of $9 from Wall Street.

By 24/7 Wall St.

PNC (PNC) is based in Pittsburgh and has almost $300 billion in assets, with over 2,500 branches and almost 7,000 ATMs in 14 states. It has a market cap of $31.01 billion, and its stock is valued at 10.6 times earnings and at less than 0.9 times book value. The return on equity is 8.9%, and the company pays out a 2.73% dividend. Shares are trading at under $59, but Wall Street is eyeing a price of $70.50. PNC was even strong enough financially to close its National City acquisition at the end of 2008 when there was so much fear in the financial markets. PNC also owns almost a quarter of the great asset-management firm BlackRock (BLK).

By 24/7 Wall St.

M&T Bank Corporation (MTB) is based in Buffalo, N.Y., and now has more than $79 billion in assets. Excluding any small purchases made recently, M&T had nearly 700 branches, 2,000 ATMs and a presence in eight states. The market cap is $10.12 billion, its P/E ratio is 12.7, and its price-to-book value ratio is only 1.07. M&T has a return on equity of 9.5% and pays out a dividend of 3.5% to common stockholders. The stock is trading just north of $80 a share, but analysts have set a target price of about $90. Berkshire Hathaway owns almost 5.4 million M&T Bank common shares worth more than $400 million.

By 24/7 Wall St.

Photo: Afagen, Flickr

U.S. Bancorp (USB) is often overlooked as a money-center bank because it is a super-regional located in Minneapolis. But it's the fifth-largest commercial bank in the United States and caters to millions of consumers. With $341 billion in assets, more than 3,000 branch locations and more than 5,000 ATMs, its operations are spread out over 25 states in America. Berkshire Hathaway owns some 69 million shares worth more than $2.1 billion. The bank's market cap is $59 billion. It is worth about 10 times earnings and 1.6 times book value. The return on equity is very high at 16%, and it offers a 2.5% dividend yield to the common holders. Shares are trading around $31.50, and Wall Street analysts have a target of about $34.25 on this great, safe bank.

By 24/7 Wall St.

Despite the media attention surrounding the JPMorgan's (JPM) multibillion-dollar trading loss, the firm is still in good shape compared to many of its peers. It has a fortress-like balance sheet with about $2.3 trillion in assets, and CEO Jamie Dimon has said the only thing that could lead to the bank's failure is a collision of the Earth and Moon. Despite a share price decline following news of the "London Whale" trading loss, the company still has a sizable market cap of $135.17 billion. Shares trade at less than 8 times earnings and only about 0.7 times book value. The return on equity is 9.8%, and the company pays a dividend yield of 3.4% on the common stock. While the bank shares are trading at just over $36, analysts value the company at $47 a share.

By 24/7 Wall St.

Wells Fargo (WFC) is the undisputed safest bank in America now that JPMorgan Chase & Co. (JPM) has come under scrutiny -- even if Chase has about $1 trillion more in assets. With some 6,200 storefront branches, more than 12,000 ATMs and an asset base of over $1.3 trillion, it has a presence in almost every state. Warren Buffett's Berkshire Hathaway owns close to $13 billion worth of the common stock, and his stake keeps rising. The market cap is a whopping $171 billion. The shares trade at less than 9 times earnings and at almost 1.2 times book value. The return on equity is just above 12%, and it offers a 2.7% dividend yield to the common holders. While shares trade at around $32.50, Wall Street analysts value the bank at almost $38 per share.

By 24/7 Wall St.

of
SEE ALL
BACK TO SLIDE
SHOW CAPTION +
HIDE CAPTION
The CFPB is currently collecting consumer complaints on a number of other topics and following up on them, including student loans, other credit card complaints and credit report errors.

While future enforcement actions are rarely telegraphed in advance, Plunkett hopes that next on the agenda are mortgage services abuses and payday lending practices. And he has high hopes for what is to come.

"They probably have a lot of things they are investigating, and it's a good sign that they didn't pick an obscure corner of the marketplace to get started," he said.

Read Full Story

People are Reading