Discover will have to pay a refund of $200 million to more than 3.5 million credit card customers after the federal government determined the company tricked customers into signing up for costly extra services.
The company will also pay an additional $20 million in civil penalties as part of the settlement in the case.
The Discover case is just the latest example of banks trying desperately to find ways to make up for lost revenue due to the tough economy and tighter regulations placed on the banks.
This past July, Capitol One agreed to refund $150 million to its credit card customers and pay $60 million in civil fines to settle allegations of deceptive marketing practices by the bank’s call center vendors in selling similar products.
The findings by the Consumer Financial Protection Bureau and Federal Deposit Insurance Corp. found that Discover Financial Services telemarketers often talked faster when explaining fees and terms as they pitched the services, leading customers to think there was no additional fee, the regulators said Monday.
The services cost about $3 to $10 a month.
According to Bankrate.com, banks have increased the average required minimum balance for free checking accounts to $723 this year, and have raised fees such as ATM surcharges to record highs.
Advocates credited the new Consumer Financial Protection Bureau for the effectiveness of the crackdown.
“Banks have been doing this for years, but we never had a regulator who protected consumers before,” said Ed Mierzwinski, director of the consumer program for the U.S. Public Interest Research Group.
Discover agreed to provide the refunds to customers who were charged for at least one of the products from Dec. 1, 2007, to Aug. 31, 2011. The refunds will depend on when the product was purchased and how long the customer kept it. People who are still customers will get a credit on their account. Former customers will receive a check. No application is necessary.
Discover did not admit or deny the allegations.
“We have worked hard to earn the loyalty of our card members, and we are committed to marketing our products responsibly,” Discover Chief Executive David Nelms said.
Regulators said scripts for Discover’s telemarketers “contained misleading language likely to deceive consumers about whether they were actually purchasing a product.”
