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CFPB orders First National Bank of Omaha to pay $32 million related to cardholder add-on practices
Thursday, August 25, 2016 — 14:10:35 (EDT)
Washington, Aug. 25, 2016 — The Consumer Financial Protection Bureau (CFPB) has ordered First National Bank of Omaha to provide $27.75 million in relief to roughly 257,000 consumers harmed by illegal practices with credit card add-on products. The bank used deceptive marketing to lure consumers into debt cancellation add-on products and it charged consumers for credit monitoring services they did not receive. First National Bank of Omaha will also pay a $4.5 million civil money penalty to the CFPB.
“First National Bank of Omaha violated the trust of its customers by illegally signing them up for credit card add-on products,” said CFPB Director Richard Cordray. "The CFPB's track record, and this result today, shows strong and consistent action against credit card companies that dupe consumers into buying a product they do not want."
First National Bank of Omaha is headquartered in Omaha, Neb. As of March 31, 2016, the bank had approximately $18.4 billion in total assets. From 2002 until at least 2012, the bank offered add-on debt cancellation products with its credit card, including “Secure Credit” and “Payment Protection.” The bank promoted these products as providing a monthly payment to the cardholder’s account in the event of certain hardships like involuntary unemployment, hospitalization, or disability. Cardholders were charged a monthly fee. The bank also offered credit monitoring products, including “Privacy Guard” and “IdentitySecure” to monitor a cardholder’s credit for potential identity theft or fraud and to provide consumers with copies of their credit reports.
Today’s order covers the bank’s unfair billing practices from 1997 to 2012, and the bank’s deceptive enrollment practices from 2010 to 2012, when the practices stopped after a CFPB supervisory exam. The Bureau found the bank deceptively marketed the debt cancellation add-on products to consumers and it found illegal billing for credit monitoring services that consumers did not receive. Specifically, the bank:
- Disguised the fact that it was selling consumers a product: The bank forced consumers to listen to their sales pitches about debt cancellation products by implying that they had to stay on the phone while their cards were activating. In reality, the card activation process was nearly instantaneous and consumers did not have to stay on the line and listen to the pitch to have their cards activated.
- Distracted consumers into making a purchase: The bank led some consumers to believe they would not have to pay for the debt cancellation products. For example, the bank confirmed enrollment by asking for the consumer’s city of birth, not by asking if the consumer wanted the product. In other cases, the bank did not make it clear that consumers were making a purchase. For example, they made it seem like they were receiving a benefit, updating their accounts, or that the consumer was merely agreeing to receive more information about the product.
- Failed to disclose consumers’ ineligibility: When marketing the debt cancellation products, the bank told some consumers they were eligible for the product even when the consumers had disclosed information suggesting they would be ineligible for some product benefits, such as that they were retired, self-employed or employed for less than 30 hours a week.
- Hindered consumers from obtaining debt cancellation product benefits: The bank maintained strict eligibility standards and administrative requirements that prevented the vast majority of consumers from obtaining several of the promised debt cancellation benefits. For example, the bank would not cover consumers if they had pre-existing health conditions, but the bank defined pre-existing as any condition diagnosed or appearing for up to six months after consumers enrolled.
- Made cancellation of debt cancellation products difficult: The bank marketed its debt cancellation products as easy to cancel but instructed its customer representatives to make cancellation difficult. It had a sales incentive plan that awarded its customer service representatives money for a “save,” which occurred when the representative kept a consumer enrolled after attempting to cancel. Consumers were often unable to cancel unless they were willing to demand cancellation multiple times in succession.
- Billed for credit monitoring services not provided: In many cases, cardholders did not receive the credit monitoring services for which they paid because the bank did not properly process their authorization. In other cases, some of the credit reporting companies did not process the authorizations because they could not match the cardholder’s information to their files.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. The CFPB’s order requires that First National Bank of Omaha:
- Repay $27.75 million to affected consumers: First National Bank of Omaha must provide an estimated $27.75 million in refunds and additional relief to approximately 257,000 customers subjected to deceptive marketing or unfair practices.
- End unfair billing and other illegal practices: Consumers will no longer be billed for products if they are not receiving the promised benefits. First National Bank of Omaha will also be prohibited from marketing any debt cancellation or credit monitoring add-on products until it submits a compliance plan to the CFPB. First National Bank of Omaha will review and, if necessary, improve its policies to ensure that it does not commit unlawful acts in the future.
- Pay a $4.5 million penalty: First National Bank of Omaha will make a $4.5 million penalty payment to the CFPB’s Civil Penalty Fund.
This enforcement action is the result of the CFPB’s investigation into First National Bank of Omaha credit card add-on products conducted in coordination with the Office of the Comptroller of the Currency (OCC). The OCC is separately ordering restitution and a $3 million civil money penalty for the unfair billing practices. This is the eighth action the Bureau has taken in coordination with another regulator to address illegal practices with respect to credit card add-on products and the 12th action the Bureau has taken in total to address these practices.
The full text of the CFPB’s Consent Order is available at: files.consumerfinance.gov/f/documents/082016_cfpb_FNBOconsentorder.pdf .
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov .
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Source: Company press release.