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From Banking and Finance Law Daily, June 19, 2014

GE Capital pays largest credit card discrimination settlement

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau and the Justice Department have filed a joint enforcement action against Synchrony Bank, formerly known as GE Capital Retail Bank, to settle allegations that GE Capital Retail Bank violated the Dodd-Frank Act and the Equal Credit Opportunity Act (ECOA) regarding GE Capital’s credit card practices. The enforcement action specifically addresses the bank’s credit card add-on products and its discriminatory practices against certain borrowers concerning two debt-repayment programs.

The CFPB’s administrative action regarding GE Capital’s credit card add-on products stemmed from an examination which was conducted between December 2012 and February 2013. The action related to the discriminatory credit card practices resulted from GE Capital’s self-reporting of the issue to the CFPB, which led to a joint investigation between the bureau and the Justice Department.

Deceptive marketing. The CFPB examination found that GE Capital’s marketing of five different debt cancellation add-on products was deceptive since telemarketers:

  • marketed the product as free of charge when, in fact, consumers could only avoid fees in very specific circumstances;

  • failed to disclose consumers’ ineligibility;

  • failed to disclose that consumers were making a purchase and made it appear that consumers were receiving a benefit; and

  • marketed the products as a limited time offer leading consumers to believe they had a short timeframe to sign up.

Discriminatory practices. According to the CFPB, GE Capital’s ECOA violation arose from its promotion of two programs—Statement Credit Offer and Settlement Offer—that allowed credit card customers with delinquent accounts to settle their balances by paying off a specific portion of their debt. The CFPB found that GE Capital did not extend these offers to any customers 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 resulted in Hispanic populations being unfairly denied the opportunity to benefit from these promotions direct violation of ECOA.

The Justice Department’s complaint, which was filed with the U.S. District Court for the District of Utah, alleged the same discriminatory actions claimed in the CFPB’s consent order; and also claimed that these actions may have caused some of these Hispanic borrowers to suffer additional consequential economic damages, including increased risk of credit problems, default, and repossession; having their accounts closed or “charged-off” and sold to a third party; and other damages, including emotional distress.

Consent order terms. Under the terms of CFPB consent order and the Justice Department’s separate consent order, GE Capital agreed to:

  • end its deceptive marketing practices and submit a compliance plan before it begins offering or marketing any add-on products by telephone;

  • end illegal discrimination

  • provide $225 million to harmed consumers, namely refunding $56 million to the approximately 638,000 consumers who were affected by its deceptive marketing of the credit card add-on products; and providing $169 million in relief to about 108,000 borrowers excluded from debt relief offers because of their national origin;

  • provide consumer relief that is convenient by providing current cardholders either a credit to their accounts or a check; consumers who are no longer GE Capital credit cardholders will receive or have received a check in the mail or have charged-off balances reduced by the amount of the relief;

  • notify credit reporting agencies of new information and work on behalf of those consumers who did not receive the debt relief offers 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; and

  • pay a $3.5 million penalty to the CFPB’s Civil Penalty Fund for its deceptive credit card marketing, GE Capital will make a $3.5 million penalty payment; no penalty was assessed with respect to the illegal discrimination since GE Capital self-reported the violation, self-initiated remediation for the harm done to affected consumers, and fully cooperated with the bureau’s investigation.

In separate press releases, both the CFPB and the Justice Department noted that the consent orders represent “the federal government’s largest credit card discrimination settlement in history.”

In a press call on the enforcement action, CFPB Director Richard Cordray stated, “This kind of conduct has no place in the consumer financial marketplace. People deserve to be given clear information and they deserve to be treated fairly.” In a press release, he added, “We will continue to take action against marketing tactics that trick consumers into buying credit card products they do not want or cannot use. Consumers also deserve to be treated fairly no matter where they live or what language they speak.”

“The blatant discrimination that occurred here is unlawful and will not be tolerated,” said Acting Assistant Attorney General Jocelyn Samuels for the Civil Rights Division. “Borrowers have the right to credit card terms that do not differ based on their national origin, and the settlement today sends the message that the Justice Department can and will vigorously enforce the law against lenders who violate that right.”

In a press conference, Samuels added, “We commend GE Capital for identifying the discrimination and reporting it to its regulator, the CFPB, and we applaud the bank’s proactive steps toward providing relief to affected borrowers even before government intervention.” She added, “We hope the detection of this issue by one of the nation’s major credit card issuers will prompt the rest of the industry to take a careful look at the way they structure and publicize offers with benefits to borrowers.”

Companies: GE Capital Retail Bank; Synchrony Bank

MainStory: TopStory ConsumerCredit CFPB CreditDebitGiftCards DoddFrankAct EnforcementActions EqualCreditOpportunity FairCreditReporting TruthInLending UDAAP

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