Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. were among the largest clients of firms whose products led to a $210 million settlement between Capital One Financial Corp. and federal regulators.
Intersections Inc. and Affinion Group Holdings Inc. both provided credit-monitoring programs that were marketed and sold by third-party vendors to Capital One cardholders, according to settlement documents dated July 17. Bank of America, Wells Fargo and Citigroup were listed in securities filings as major customers by one or both of the providers, with Bank of America accounting for more than half of annual revenue at Intersections. The vendors weren't named, and regulators didn't accuse Intersections or Affinion of misconduct.
Capital One settled accusations July 18 that vendors used deceptive, high-pressure practices to sell optional products such as credit monitoring and payment protection. It was the first public enforcement case brought by the year-old Consumer Financial Protection Bureau, and Director Richard Cordray said more firms that marketed similar products will face sanctions.
"We know these deceptive marketing tactics for credit-card add-on products are not unique to a single institution," Cordray said last week. "We expect announcements about other institutions as our ongoing work continues to unfold." He didn't name any of the firms, and Jen Howard, a CFPB spokeswoman, declined to comment on enforcement plans.
The dispute concerns so-called payment protection, which pays credit-card bills in case of job loss or disability, and monitoring services that alert customers to changes in their credit profiles.
From August 2010 through last December, vendor call agents used "high-pressure sales tactics and made materially false, deceptive, or otherwise misleading oral statements relating to the cost, coverage terms, benefits, and other features" to sell products to Capital One customers, documents filed by the Office of the Comptroller of the Currency show.
The bank also billed cardholders for monitoring services as far back as 2002 even though they didn't receive full benefits, said the OCC, which participated in the probe. Customers were wrongly led to believe they needed to buy the extra services to activate cards or that debt protection or credit monitoring was free, and others were left believing that the purchase would improve their credit scores, Cordray said.
Bank of America, Wells Fargo and Citigroup spokesmen declined to comment on whether they received complaints or faced enforcement actions similar to those at McLean, Virginia-based Capital One, and the CFPB hasn't accused them of wrongdoing.
Intersections is a publicly traded firm based in Chantilly, Virginia, while Affinion, based in Stamford, Connecticut, is owned by private-equity firms Apollo Global Management LLC and General Atlantic LLC.
James Hart, an Affinion spokesman, declined to comment on the company's relationship with current clients. Affinion hasn't worked with Capital One since 2001, when Intersections took over management of credit-protection products, Hart said. Leslie Garrett, a spokeswoman for Intersections, declined to comment on specific clients.
Billions at Stake
While Capital One agreed to $150 million in restitution and $60 million in fines, the lender isn't listed among the top clients of either vendor. Bank of America, by contrast, accounted for 52 percent of Intersections's revenue in 2011 and Citigroup comprised 8 percent, according to the vendor's year- end filing. Bank of America and Citigroup also are listed among the top six Affinion clients in that company's documents.
"That was a pretty large fine and I don't think it's isolated," said Mark T. Williams, a former Federal Reserve bank examiner who now teaches risk-management at Boston University. "I call it third-party vendor risk and it could be in the billions of dollars. When we look at all these large banks, what's happening is all their unethical practices are coming back to haunt them."
The consumer bureau has informed the banks it supervises — those with assets of at least $10 billion — that they must "oversee their business relationships with service providers in a manner that ensures compliance with federal consumer financial law," according to an April 13 statement.
Citigroup, the third-biggest U.S. lender by assets, uses Intersections for credit-monitoring products, according to Emily Collins, a spokeswoman for the New York-based bank. In a regulatory filing, Affinion called Wells Fargo a "leading marketing partner" in 2011.
"We engage a number of providers who assist in the marketing, fulfillment and administration of some of our protection products for our customers, including Affinion," said Erin Downs, a spokeswoman for San Francisco-based Wells Fargo, the largest U.S. home lender.
Bank of America, the second-biggest U.S. bank by assets, had stopped marketing some of the products by the end of 2011, Intersections said in a March 15 regulatory filing. The Charlotte, North Carolina-based bank has set aside more than $500 million in reserves for U.K. customers who bought credit- card payment-insurance products, according to filings.
The filings didn't show which outside firms were involved, and Tony Allen, a Bank of America spokesman, said he couldn't comment on the role of vendors.
Regulatory examination of the products is eroding enthusiasm among bankers for Affinion products, according to Nathaniel Lipman, the firm's chief executive officer.
"Because of some of the new regulators on the block, most notably the CFPB, but secondarily the OCC, those sources of fee income are under scrutiny," Lipman said on an April 26 conference call.
Affinion lost money for the past three years, including $156.9 million in 2011 on revenue of $1.54 billion, filings show. Intersections earned $18.6 million last year on revenue of $373 million.
Optional card products including credit monitoring have been the targets of criticism from consumer groups who say they offer little value. Americans are entitled to a free annual credit report, said Chi Chi Wu, a lawyer with the Boston-based National Consumer Law Center.
"By providing services directly to the end-customers of our marketing partners, we become an important part of our marketing partners' businesses," Affinion said in a filing for the year ended Dec. 31. "Many of our marketing partners have been working with us for over 10 years."
Capital One now plans to abandon this market, saying earlier this month it can find other ways to grow, and that marketing calls by its vendors violated "explicit instructions" on how to sell the products. The company, ranked sixth by deposits among U.S. commercial banks, apologized and promised restitution to 2 million customers.
"We have no intention to sell these card add-on products in the future," CEO Richard Fairbank, 61, said last week.
Bank of America stopped marketing Intersections products including identity-theft protection to prospective customers as of Dec. 31 and said it wouldn't renew the agreement, according to a securities filing.
Intersections added more than 573,000 Bank of America customers in 2011, according to company filings. It lost more than $320,000 in revenue in the three months ended in March, compared with a year earlier, largely as a result of the bank's decision, according to a May 10 filing.
"We are not obtaining a material number of new subscribers or new subscriber revenue through Bank of America, and expect a reduction in marketing and commissions expenses through at least December 31, 2012," the vendor said. Shares of Intersections dropped 1.7 percent to $14.52 at 9:58 a.m. in New York, leaving them more than 30 percent above where they began this year.