The Consumer Financial Protection Bureau this month ordered GE Capital to pay $225 million in restitution to consumers harmed by illegal and discriminatory credit card practices. The bank will also pay $3.5 million to the CFPB's Civil Penalty Fund.

As part of the enforcement action, GE Capital, which changed its name to Synchrony Bank on June 2, must refund $56 million to 638,000 consumers who were harmed by illegal credit card practices. The bank must also pay $169 million to 108,000 borrowers excluded from debt relief offers because of their national origin, representing the federal government's largest credit card discrimination settlement in history.

The enforcement action resulted from GE Capital's self-reporting of the discriminatory credit card practices, leading to a joint investigation between the CFPB and the Department of Justice.

According to the CFPB, GE Capital used several deceptive marketing practices to promote its credit card add-on products. The bank promoted these products as providing debt cancellation of a certain percent of the consumer's balance in the event of certain hardships, like involuntary unemployment or disability. The CFPB said the telemarketing GE Capital's telemarketers misrepresented these products to consumers in various ways that were misleading and omitted pertinent information.

For example, telemarketers led consumers to believe they would not have to pay for these products as long as they paid off the balance on their billing statement. In reality, consumers could only avoid the fee in very specific circumstances, such as if the account was not in use, or if the customer had paid off the balance prior to GE Capital issuing its monthly billing statement.

Telemarketers also neglected to tell certain consumers that they would not be eligible for key debt cancellation benefits, or failed to disclose when consumers were actually purchasing a product and would be charged a fee.

Discriminatory Practices

According to the CFPB, GE Capital also failed to extend special credit offers to any customer who indicated that they preferred to communicate in Spanish or had a mailing address in Puerto Rico, even if the customer met the promotion's qualifications. This meant that Hispanic populations were unfairly denied the opportunity to benefit from these promotions.

Such discrimination violates the Equal Credit Opportunity Act, which prohibits creditors from discriminating in any aspect of a credit transaction on the basis of characteristics such as race and national origin. In this case, the customers did not receive either offer in any language, including English, and did not know they were being discriminated against.

Consent Order Details

Under the Dodd-Frank Act, the CFPB has the authority to take action against banks that engage in unfair, deceptive, or abusive practices. The CFPB issued a consent order as an administrative action covering both the deceptive marketing practices and the illegal discrimination.

The CFPB's consent order requires GE Capital to:

End deceptive marketing practices: GE Capital ended all telephone-based enrollments for all of the add-on products and is prohibited from marketing or offering these products by telephone until it submits a compliance plan to the Bureau.

End illegal discrimination: GE Capital has included qualified customers who prefer to communicate in Spanish and customers with a mailing address in Puerto Rico as part of the settlement.

Notify credit reporting agencies of new information: For those consumers who did not receive the debt relief offers, GE Capital will work with credit reporting agencies to ensure that any negative information associated with the consumer's GE Capital accounts as a result of these violations will be deleted from their credit history.

Forgive debt of accounts that did not receive debt relief offers: For the customers that did not receive debt relief offers because they preferred to communicate in Spanish or had a mailing address in Puerto Rico, if GE Capital had written off or sold their debt, that debt will be forgiven.

The CFPB has ongoing supervisory authority over GE Capital and will continue to conduct examinations to ensure its compliance with federal consumer financial law.

More Actions

Since its establishment in 2011, the CFPB has been increasingly active in seeking out similar problems involving credit card add-ons at banks. Past actions include fining Bank of America $747 million;  JPMorgan Chase $389 million; American Express agreeing to a total of $27 million in civil penalties and $85 million in restitution to more than 250,000 consumers; Discover bank agreeing to a $214 million settlement; and, with its first ever enforcement action, ordering Capital One Bank to refund approximately $140 million to customer, pay a $25 million penalty, and develop a compliance plan for how “add-on” products are sold.

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