(CBS/AP) WASHINGTON - Discover Bank will pay millions in fees to settle accusations by U.S. regulators that it pressured credit card customers to buy costly add-on services like payment protection and credit monitoring.
Discover (DFS), the sixth-biggest U.S. credit card issuer, will pay a $14 million fine and refund $200 million directly to more than 3.5 million customers, federal authorities said Monday.
The company's call-center workers enrolled customers in the programs without their consent, misled them about the benefits and left customers thinking the products were free, regulators said.
"The agencies jointly determined that Discover engaged in deceptive telemarketing tactics to sell the company's credit card add-on products," the FDIC and Consumer Financial Protection Bureau, which brought the action against Discover, said in a joint statement announcing the settlement. "Payment Protection was marketed as a product that allows consumers to put their payments on hold for up to two years in the event of unemployment, hospitalization, or other qualifying life events. Discover also sold its Credit Score Tracker, designed to allow a customer unlimited access to his or her credit reports and credit score."
Discover also improperly marketed products to help consumers cancel credit cards if their wallets were stolen and to protect them against identity theft.
Discover, part of Discover Financial Services, said this summer that it expected an enforcement action about add-on products. Under the settlement, the company neither admitted nor denied the allegations.
"We have worked hard to earn the loyalty of our cardmembers, and we are committed to marketing our products responsibly," said David Nelms, CEO of Discover, said late Friday in a statement regarding the federal settlement. "As always, we will continue to strive to deliver the highest standards of customer service and satisfaction."
It is only the third public enforcement action by the consumer bureau, which was created under the 2010 financial overhaul law to protect consumers from excessive or hidden fees and other financial threats. The first was a similar order against Capital One (COF), another big issuer of cards.
American Express (AXP) also expects to pay refunds and fines related to add-on products, according to its most recent quarterly filing with regulators.
Discover's telemarketing scripts included misleading language that confused consumers about whether they were buying a product or just agreeing to consider it, the agencies said. They said telemarketers spoke quickly during the part of the call where the prices and terms of products are described.
The order mentions four products sold by Discover: Payment Protection, Credit Score Tracker, Identity Theft Protection and Wallet Protection. Anyone who paid for those services between Dec. 1, 2007, and Aug. 31, 2011, will be repaid at least 90 days' worth of fees. About 2 million customers will be repaid all of the fees they were charged.
In addition to the refunds and fine, Discover agreed to change its telemarketing approach and employ an independent auditor to oversee its compliance with the order.