Discover Bank has agreed to pay $200 million to cardholders to settle claims of deceptive telemarketing. The Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation announced the agreement following a joint investigation. Discover Bank, a subsidiary of Discover Financial Services, will also pay a $14 million fine that will be divided between the two regulators.
The agencies alleged that Discover’s telemarketing and sales strategies misled consumers about the additional products available when opening credit cards. Discover telemarketers used deceptive language to convince cardholders to pay for identity theft protection, credit score tracking, wallet protection, and payment protection. In some cases, sales representatives were paid incentives when they enrolled customers in these products.
CFPB director Richard Cordray said, “Discover’s telemarketing scripts contained many misrepresentations, implying that these products were free of charge and simply “added benefits.’ [Investigators from the CFPB and FDIC] listened to numerous recorded sales calls where Discover’s telemarketers spoke unusually fast when explaining the cost and product terms, and even processed purchases without the consent of consumers.”
The settlement will affect more than 3.5 million cardholders. Cardholders who purchased credit protection products over the phone from December 2007 to August 2011 will be given a share of the $200 million settlement, with customers receiving an average refund of roughly $57 for the fees they paid. Fees for Discover’s credit products varied, with the identity theft protection costing $9.99 a month and the credit score tracker costing $7.99 a month.
According to the CFPB and FDIC, all customers should receive their refunds by early 2013. The amount each customer will be refunded depends on what the product was, how long the customer had it, and when it was purchased. Customers will be refunded at least 90 days’ worth of fees, automatically credited to their accounts. Customers that have an outstanding Discover balance will have the balance reduced by the refunded amount. Customers who no longer have a Discover account will receive checks in the mail.