By Andrew R. Johnson
A federal judge has denied Capital One Financial Corp.'s (COF)
efforts to block state regulators' lawsuits over payment-protection
products marketed to credit-card customers.
Payment protection, also known as credit protection, has come
under increased regulatory scrutiny amid claims that lenders have
mischaracterized product features and enrolled customers in the
services, which carry monthly fees, without their permission.
Capital One in July agreed to pay $210 million to settle similar
allegations brought by the Consumer Financial Protection Bureau and
Office of the Comptroller of the Currency.
Separately, the McLean, Va.-based bank sought injunctions
earlier this month against the attorneys general for Mississippi
and Hawaii, who have filed lawsuits in recent months against
Capital One over its sales practices for payment protection.
The request was made in a motion filed in U.S. District Court
for the Middle District of Florida, which approved a settlement in
2010 over a federal class-action lawsuit in which customers claimed
the bank enrolled them in payment protection without their
permission.
"If allowed to proceed, the Attorneys General suits will
'unsettle' that which has been settled and will cast doubt on the
finality" of the district court's rulings in the previous case,
attorneys for Capital One argued in their Aug. 3 motion.
But U.S. District Court Judge Virginia Hernandez Covington
denied Capital One's requests in an order filed Wednesday, calling
the bank's requests "inappropriate."
The federal court's approval of the 2010 settlement "did not
bind the States of Mississippi and Hawaii" because they weren't
defined as class members in that case and "didn't have an
opportunity to participate in the litigation or opt out of the
class." Preventing the states from bringing their suits would
violate their due process, she stated.
Capital One spokeswoman Tatiana Stead didn't have an immediate
comment when contacted Friday.
Banks have marketed payment protection as a safety net
cardholders can rely upon if they lose their jobs, encounter health
problems or incur another hardship that prevents them from making
their minimum monthly payment. The service is supposed to suspend a
borrower's minimum monthly payments for a certain period of time if
such an event occurs.
As part of the 2010 settlement, Capital One agreed to pay up to
$250 million to credit-card customers who had payment protection,
though they ultimately received about $60 million, based on the
number of customers who opted in to the deal, Richard Golomb, an
attorney with the law firm Golomb & Honik PC, said Friday. The
law firm helped represent the plaintiffs in the case and is serving
as private counsel to Mississippi and Hawaii in their cases.
Capital One also sought sanctions against Golomb & Honik as
part of its motion, arguing the firm's representation of the two
states "exhibit willful disobedience of the order" approving the
2010 settlement and "should be penalized."
In her Wednesday order, the judge declined to issue sanctions
against Golomb & Honik.
Hawaii AG David Louie filed a suit against Capital One in April,
while Mississippi AG Jim Hood did so in June. Both actions allege
the bank has failed to accurately disclose the terms and conditions
of payment-protection products to customers and determine if
customers actually qualify for the service before enrolling
them.
West Virginia AG Darrell McGraw in January said Capital One
agreed to pay $13.5 million to settle a similar case.
Several large banks recently said they have halted sales of
payment protection.
Bank of America Corp. (BAC) stopped selling credit protection to
its credit-card customers earlier this month and plans to phase it
out for existing cardholders enrolled in the service sometime next
year, the bank said this week. Bank of America agreed this summer
to pay $20 million to settle a federal class-action lawsuit in
which Golomb & Honik was also involved.
J.P. Morgan Chase & Co. (JPM) stopped offering the product
to new customers last October. Citigroup Inc. (C) has temporarily
stopped selling the product over the phone while it reviews the
product to ensure it is in line with recent guidance from the CFPB,
a spokeswoman said this week.
Capital One said last month it had stopped offering payment
protection and a credit-monitoring product after it agreed to pay
the CFPB and OCC $60 million in fines stemming from claims that its
third-party sales agents mismarketed the products. The bank also
agreed to refund $150 million to customers.
Discover Financial Services (DFS) is facing a joint-enforcement
action by the CFPB and Federal Deposit Insurance Corp. over its
marketing of payment protection and other add-on products, the
company has said in regulatory filings.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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