Discover hit with massive fine over credit card marketing

A number of the nation's largest credit card companies have altered the ways in which they marketed certain account add-ons that could be more costly than helpful for consumers, and one recently made a major announcement with regard to these services.

Discover Financial Services settled a case related to the credit protection products its credit card arm, Discover Bank, marketed to consumers by phone, according to a report from the company. Though this case, brought against the credit card lender jointly by the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau, has technically been settled, it still needs to be approved by both agencies.

Terms of the settlement
The deal, agreed to by Discover Financial late last week, will see the company provide refunds to the customers who purchased the services being marketed by the company over the phone, the report said. Altogether, these reimbursements will total roughly $200 million, and be granted to cardholders who purchased the products pushed by telemarketers between December 2007 and August 2011.

In addition, the lender will have to make "certain enhancements" to its marketing practices in general, the report said. Further, an aspect of the agreement that doesn't directly benefit consumers is that it will pay $14 million to the FDIC and CFPB, to be split between the regulatory agencies.

"We have worked hard to earn the loyalty of our cardmembers, and we are committed to marketing our products responsibly," said David Nelms, chairman and chief executive officer of Discover. "As always, we will continue to strive to deliver the highest standards of customer service and satisfaction."

What was being marketed?
The specifics of what the company was pushing to consumers by phone relate to a practice that was popular within the credit card industry for a period of several years. While many lenders offered different types of credit protection to consumers, each had the common trait of generally allowing consumers to miss payments if they fell on qualifying economic hard times.

However, many experts noted that these credit protection plans often had many restrictions and may have led to more debt, which in turn could become even more troublesome for burdened consumers to pay off. Typically, these products only covered minimum payments for those who fell behind on their bills.

The other issue with these types of protection services is that often they were unnecessary for the consumers who bought them, or cost more than they ended up being worth. For this reason, consumers might have ended up paying hundreds of dollars or more for such a service over the course of a year, while any benefits they may have been able to reap from the protection would have been limited to less than that in many cases.

Recently, another major lender was also hit with a similarly sized fine regarding this type of credit payment protection, though in that case it was being marketed by third-party companies. Capital One Financial agreed to pay $210 million to settle that dispute, which claimed that it did not properly monitor services being sold to protect its accounts, according to a report from the CFPB. That money totaled $140 million repaid to some 2 million consumers, and $25 million in penalties, split between the CFPB and the U.S. Office of the Comptroller of the Currency.

At the time that action was announced, CFPB director Richard Cordray noted the agency would continue pursuing companies that marketed these products to consumers, the report said.

"[Affected customers] were pressured or misled into buying credit card products they didn't understand, didn't want, or in some cases, couldn't even use," said Richard Cordray. "We are putting companies on notice that these deceptive practices are against the law and will not be tolerated."

What consumers can do
Fortunately for regular credit card users, the federal crackdown on these types of services led almost all of the nation's largest lenders to discontinue or radically alter the ways in which they offered these credit protection products, the report said. Perhaps the best way for borrowers to make sure they don't run into any problems if they fall on difficult financial times is to make an effort to keep credit card balances down as low as possible so that they can afford to at least make minimum payments into their accounts when necessary.

However, efforts to protect your credit shouldn't end there. You should also take the time to order a copy of your credit report and check it closely to determine whether there are any unfair markings dragging down your credit score. If so, working with a credit repair attorney may help to clear up the issue.