Discover Financial Services will refund $200 million to more than 3.5 million credit card customers and pay a $14-million civil penalty after a federal investigation determined that the company used deceptive marketing tactics to sell payment protection plans and other add-on services, two regulatory agencies announced Monday.
Scripts for Discover's telemarketers "contained misleading language likely to deceive consumers about whether they were actually purchasing a product," the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau said.
The telemarketers downplayed important information about the add-on services and spoke quickly when they discussed prices and terms, the agencies said of the findings of their joint investigation.
In addition to a payment protection plan -- which allowed customers to stop making payments for up to two years in case they lost their job, were hospitalized or were dealing with another qualifying event -- the investigation covered programs dealing with credit score tracking, identity theft protection and Discover's Wallet Protection, which helped cancel cards if they were lost or stolen.
The telemarketing practices misled customers about whether there was a charge for the products, with language "implying that the products were additional free 'benefits,' rather than products for which a fee would be applied to their accounts," the agencies said.
Telemarketing scripts also often suggested customers would not be charged for the products until after they had reviewed written materials. But those materials were not provided until after Discover had processed the purchase of the products.
In some cases, customers were enrolled in the programs without their consent.
"We have worked hard to earn the loyalty of our card members, and we are committed to marketing our products responsibly," said Discover Chief Executive David Nelms. "As always, we will continue to strive to deliver the highest standards of customer service and satisfaction."
Discover agreed in a consent order to provide $200 million in 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 the product, the agencies said.
In general, all customers who purchased the products will be refunded at least 90 days' worth of fees for the product, except those who affirmatively made use of the payment protection. About 2 million Discover customers will get all the fees they paid returned, minus any refunds they already received.
Discover also agreed to pay the $14-million civil penalty, to stop the practices and to submit to an independent audit.
The Discover refunds are the second major enforcement action involving the Consumer Financial Protection Bureau, which was created by the 2010 financial reform law.
In July, Capital One agreed to refund $150 million to credit card customers and pay $60 million in civil fines for deceptive marketing practices by the bank's call center vendors.