Ten months after Citigroup Inc. was fined by state attorneys general for what they said were deceptive telemarketing practices by credit card issuers, Bank One Corp. has been hit with a similar fine, and law enforcement officials said more investigations may be under way.
Like Citigroup, Bank One did not have to admit any wrongdoing in the settlement, announced Tuesday. It requires the Chicago company to pay a $1.3 million and make various changes in its credit card unit's telemarketing.
Bank One said that it started making the recommended changes in 1999, when the investigation began.
According to law enforcement, the problems are mostly with the telemarketers' scripts, rather than with the card issuers themselves. The attorneys general focused on the issuers because they thought that would do better at halting the objectionable tactics.
The money from the settlement with Bank One Card Services, which was known as First U.S.A. when the investigation began, will be divided by 28 states and Puerto Rico. The investigation was led by New York State Attorney General Eliot Spitzer, and New York will take $125,000 of it to cover the costs of its three-year investigation.
Joining New York State in the settlement are: Arizona, California, Colorado, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Vermont, Washington State, Wisconsin, and Puerto Rico.
A press statement issued by Mr. Spitzer blasted what he called deceptive telemarketing tactics of club membership-type services.
"Often, it was not clearly disclosed to consumers that they had an obligation to cancel during the so-called 'risk-free' trial period or have their credit card charged," the statement said. "Making matters worse, the confirmation by the vendors never included asking cardholders for their credit card account numbers and instead simply asked consumers to 'confirm' their name and address in order to avoid 'clerical mistakes.' These practices led many consumers to believe that they were accepting an offer that would simply expire with no obligation to themselves."
It was the second such settlement that Mr. Spitzer won in 2002. The first was with Citigroup's Citibank unit, which agreed to pay $1.6 million to settle the issue in February.
These settlements are apparently the tail end of a patchwork of investigations into the industry's marketing that began in the late 1990s. One of the first such enforcement actions was brought against Minneapolis-based U.S. Bancorp in 1999 over its relationship with the telemarketer MemberWorks.
The complaint, brought by the Minnesota attorney general, charged that MemberWorks intentionally misled consumers into believing that charges could not go on their accounts. U.S. Bancorp ended up paying $3 million in fines and had to promise to refund fees to consumers who complained.
The largest settlement of this type was in 2000, when Providian Financial Corp. reached agreements totaling more than $300 million with the Office of the Comptroller of the Currency, the San Francisco District Attorney, and the Connecticut attorney general over its telemarketing, including sales of club-membership products.
Providian agreed to sharply restrict telemarketing practices, record all sales calls, and ask every customer if they were satisfied that they understood the terms of the sale. The restrictions helped contribute to a 13.7% drop in fee income for the issuer in the following year.
Bank One has to review and approve all telemarketing scripts; get its vendors to comply with federal and state consumer protection laws; and see that vendors clearly and conspicuously identify telemarketing company if the script refers to the bank.
According to news reports, Bank One Card Services now works with just one vendor for club membership telemarketing, Trilegiant Corp. of Norwalk, Conn. The reports did not say what the situation was in 1999, and a Bank One spokeswoman did not return phone calls Tuesday afternoon.
