Why it matters

In what the Consumer Financial Protection Bureau (CFPB) said was the first action brought directly against the companies that market or administer ancillary products, the CFPB filed proposed consent orders totaling $10 million against Affinion Group Holdings, Inc., its subsidiaries, and Intersections Inc. to settle an action alleging the defendants charged consumers for credit card add-on products they did not receive. According to the CFPB, the defendants enrolled customers in programs for products such as identity theft protection and credit monitoring with recurring monthly charges—but often failed to get the necessary written authorization for the charges or took an inordinately long time to get it while still charging customers. The defendants duped consumers about the scope of the add-on products, the Bureau added, claiming they could improve customers' credit scores when they did not have the ability to do so. Affinion and Intersections neither admitted nor denied the charges that they violated the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibitions on unfair and deceptive acts and practices. Affinion promised to pay roughly $6.8 million in restitution to approximately 73,000 account holders and halt any deceptive practices with a $1.9 million civil penalty. Intersections will chip in about $55,000 in restitution and $1.2 million in civil penalties. CFPB Director Richard Cordray noted that the Bureau is continuing to monitor add-on products for potential violations. "We continue to address unlawful conduct in this space and are signaling to other financial institutions and their service providers that their marketing and billing practices must be fair to consumers," he cautioned in a statement about the action.

Detailed discussion

Affinion and Intersections are vendors of credit card add-on products. But in a recent action taken by the CFPB, the companies were accused of charging consumers for identity theft and credit monitoring products they did not actually receive.

The companies partnered with banks to provide credit monitoring services or identity theft protection to credit card holders and other bank customers for a monthly membership fee. While the Bureau has previously taken action against banks with regard to illegal practices in the marketing or administration of add-on products, the CFPB elected in the current action to target the vendors directly.

Affinion and its affiliates and subsidiaries charged consumers between $6.95 and $15.99 per month for credit monitoring and/or credit report retrieval through marketing and service agreements with banks between July 2010 and August 2012. Consumers purchased the product over the phone, and despite the need to obtain written authorization from customers, Affinion and its partner banks began charging them immediately, the CFPB alleged, electing not to wait until they received the authorization—and in some cases, never obtaining it.

In some instances, consumers were charged for products and did not receive their benefits because of service delivery errors, such as not being able to authenticate the consumers with one or more credit bureaus or the consumer lacking sufficient credit history. Further, the Bureau alleged that Affinion, in an effort to avoid cancellation, "frequently misled" consumers about the benefits of its products during customer retention calls, with employees claiming they had the power to remove inaccurate information from consumers' credit reports and raise their credit score when Affinion had no control over the information contained in a consumer's credit report.

Intersections engaged in similar activity, the CFPB alleged. From 2009 through the beginning of 2013, the company promised consumers that its add-on products would provide access to their credit reports, credit score information, e-mail or phone alerts when new credit accounts were opened, and access to a representative to respond to their credit report questions. For these services, consumers paid between $8 and $13 per month.

However—knowing that the customers were not receiving all the benefits—Intersections billed or instructed the banks to bill about 300,000 consumers, charging them for services they were not being provided, the CFPB alleged. Some customers paid for the services for several years without receiving the promised benefits, the Bureau added.

Alleging that Affinion and Intersections violated the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibition on unfair practices related to the billing or administration of add-on products, the CFPB filed complaints against the defendants in Connecticut and Virginia federal court, respectively, concurrent with consent orders.

Affinion agreed to provide a full refund to the approximately 73,000 affected customers, or about $6.8 million, and to stop billing customers for credit monitoring services if they are not receiving the promised benefits. For those customers currently enrolled that contact Affinion to cancel their membership, the company must immediately cancel it without attempting to persuade the customer to retain the product. Payment of $1.9 million to the CFPB's Civil Penalty Fund is also required.

The majority of Intersections customers have already received refunds, but the company said it would reimburse the remaining consumers who were billed for products they did not receive, estimated to be $55,000. The company will also halt the practice of billing for services that are not received and will make a $1.2 million payment to the Bureau's Civil Penalty Fund.

To read the complaints and consent orders in CFPB v. Affinion and CFPB v. Intersections, click here.