Capital One Financial Corp.’s efforts to block state regulators’ lawsuits over payment protection plans marketed to credit card customers has been denied by a federal judge.
Also known as credit protection, payment protection has been the subject of increased scrutiny by regulators in light of claims that lenders have misrepresented product features and deceptively enrolled customers in the services, which come with monthly fees, without gaining their consent. In July, Capital One agreed to settle similar allegations to the tune of $210 million.
Banks have marketed payment protection as a safety net cardholders can rely upon if they lose their jobs, encounter health problems or incur another hardship that prevents them from making their minimum monthly payment. The service is supposed to suspend a borrower’s minimum monthly payments for certain period of time if such an event occurs.
The bank, which is based in Virginia, separately sought injunctions earlier this month against the attorneys general for Hawaii and Mississippi after they filed lawsuits over its deceptive sales practices for credit protection services.
The request was made in a motion filed in the U.S. District Court for Florida’s Middle District, which in 2010 approved a settlement over a federal class action in which consumers alleged that the bank enrolled them in credit protection without their consent.
In a motion made on August 3, the attorneys for Capital One argues that the lawsuits brought by the attorneys general would unsettle the district court’s rulings in the previous case. However, this request was denied by a U.S. District Court judge, who called the requests “inappropriate.”
Because they were not defined as class members in the 2010 case and therefore did not have the opportunity to opt out of the class or participate in the litigation, the federal court’s approval “did not bind the States of Mississippi and Hawaii.” Preventing the states from bringing their lawsuits would be a violation of their right to due process.
Capital One agreed to pay as much as $250 million to credit card customers who had payment protection, although they ultimately received only about $60 million based on the number of people who opted into the settlement. Richard Golomb, a Philadelphia class action attorney at Golomb Legal, P.C., has helped represent the plaintiffs in this case and is serving as private counsel to Hawaii and Mississippi in their cases.
Capital One requested sanctions against Golomb Legalas part of its motion, saying that the firm’s representation of the two states went against the order approving the settlement and that they should be punished. The judge declined the request.
Mississippi Attorney General Jim Hood filed suit against Capital One in June, and Hawaii’s Attorney General David Louie filed suit in April. Both lawsuits alleged that the bank failed to accurately disclose the conditions and terms of the credit protection plans to customers and determine if they even qualified for the service before enrolling them. Capital One settled a similar case in January for $13.5 million, according to West Virginia Attorney General Darrell McGraw.
Several large banks recently said they have halted sales of payment protection, including Bank of America, who settled a case this summer in which Golomb Legalwas involved for $20 million. Other banks who have stopped offering the product include Citigroup Inc. and JPMorgan Chase & Co.
Discover Financial Services is also facing an enforcement action over its marketing of credit protection and other add-on products.
Source: Fox Business