WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) targeted another major credit source for the way it delivers add-on products to customers. This time it was Chase Bank and JP Morgan Chase Bank, which were ordered to refund an estimated $309 million to more than 2.1 million customers for what the bureau described as “illegal credit card practices.”
The investigation originated out of the Office of the Comptroller of the Currency (OCC), which the CFPB joined last year. Chase was found to be engaging in unfair billing practices for certain credit card "add-on products" by charging consumers for credit monitoring services that they did not receive.
"At the core of our mission is a duty to identify and root out unfair, deceptive and abusive practices in financial markets that harm consumers," said CFPB Director Richard Cordray. "This order takes action against such practices and requires Chase to fully refund more than $300 million to consumers who were charged illegal fees."
According to the CFPB order, Chase enrolled consumers in credit card "add-on" products that promised to monitor customer credit and alert consumers to potentially fraudulent activity. In order for consumers to obtain credit monitoring services, consumers generally must provide written authorization. Chase, however, charged many consumers for these products without or before having the written authorization necessary to perform the monitoring services. The order stated that Chase charged customers as soon as they enrolled in these products, even if they were not actually receiving the services yet.
The two agencies found that Chase engaged in these practices between October 2005, when Chase first offered the products, and June 2012, when Chase stopped billing consumers who were not receiving the promised benefits.
Monthly fees for these add-on products ranged from $7.99 to $11.99. In some cases, consumers paid for these services for several years without receiving all of the promised benefits. These fees sometimes resulted in customers exceeding their credit card account limits, which lead to additional fees for the customers. Some consumers also paid interest charges on the fees for services that were never received.
The CFPB's order requires that Chase Bank and JPMorgan Chase Bank end unfair billing practices and take steps to ensure these unlawful acts do not occur in the future. The banks must also:
Complete repayment, plus interest, to more than two million consumers: Chase must pay a full refund, approximately $309 million, to more than two million consumers who enrolled in the credit monitoring product and were charged for services that were not received. In addition to the amount paid for the product, Chase must refund interest and any over-the-limit fees resulting from the charge for the product.
Conveniently repay consumers: If the consumers are still Chase customers, they received a credit to their accounts. If they are no longer a Chase credit card holder, they received checks in the mail. Consumers were not required to take any action to receive their credit or check. Most consumers should have received refunds by Nov. 30, 2012.
Submit to an independent audit: Chase has engaged an independent auditor to help ensure the refunds have been provided in compliance with the terms of the CFPB's order.
Improve oversight of third-party vendors: The CFPB is also requiring that Chase strengthen its management of third-party vendors who manage these identity protection products.
Pay a $20 million penalty: Chase will make a $20 million penalty payment to the CFPB's Civil Penalty Fund.
This action is the third that the Bureau has taken in coordination with a fellow regulator to address illegal practices with respect to credit card add-on products. It is being taken in coordination with a separate action of the OCC, which initiated the inquiry in 2011. The OCC is separately ordering restitution of approximately $309 million from Chase Bank USA and JPMorgan Chase Bank. The OCC's order also includes a separate order for Chase to pay $60 million in civil money penalties in addition to those ordered by the CFPB.
