First National Bank of Omaha will pay more than $35 million in reimbursements and civil fines after federal regulators determined some of the bank's products unfairly or deceptively enrolled and charged customers for products they did not receive.
The bank has not sold any of the products in regulators' sights since 2012. Two of them had been sold to customers since 1997. In all, the bank will reimburse approximately 257,000 customers for a total of $27.75 million.
It must also pay civil fines of $7.5 million.
The enforcement actions were handed down by the Consumer Financial Protection Bureau and the bank's main regulator, the Office of the Comptroller of the Currency.
The protection bureau enforcement action found, among other things, that the bank obscured its sales pitch, "distracted consumers into making a purchase" and made it difficult for customers to cancel such services.
First National told The World-Herald that its oversight of the products "was lacking."
"At First National Bank, we know it is our responsibility to ensure that our customers receive all of the advertised benefits of any product we are involved in marketing, whether directly or indirectly," said Dan O'Neill, president of First National. "While the bank did not intentionally mislead our customers, our oversight of the products and the vendor that administered these products was lacking."
The bank has been expecting blowback from regulators' investigations of now-discontinued products like Privacy Guard and Identity Secure, which were sold to credit card customers and provided daily credit-report monitoring and help in recovering from identity theft. (Those services were not First National products but were another company's that the bank sold to its customers.)
First National over the past two years has set aside millions of dollars in anticipation of the enforcement actions announced Thursday, and the bank's future earnings will not be affected, O'Neill said.
Of the civil fines, $3 million levied by the Office of the Comptroller of the Currency will be paid to the U.S. Treasury. The OCC found First National violated Section 5 of the Federal Trade Commission Act concerning "unfair or deceptive acts or practices."
The remaining $4.5 million will be paid to the protection bureau's Civil Penalty Fund, a pool of money from which the regulator pays to victims of such activities.
The protection bureau has already nailed the administrator of the PrivacyGuard and IdentitySecure products; Connecticut-based Affinion Group Holdings and its affiliated companies in July 2015 were ordered to refund some $6.8 million to consumers who the regulator said were unfairly charged for products they did not receive. Affinion was also required to pay a $1.9 million civil fine.
The crackdown on Affinion and similar companies has also touched megabanks like JPMorgan Chase and Bank of America, which have felt the ire of the protection bureau when it comes to credit card "add-on" products.
Bank of America in April 2014 was hit with an order to refund $727 million to about 1.4 million customers whom the regulator said were affected by deceptive marketing of such products. Chase in September 2013 was forced to refund approximately $309 million to more than 2 million customers.
Each bank also paid a $20 million civil penalty.
Comments made by protection bureau Director Richard Cordray about the enforcement action against First National echo what he has said for years about financial institutions' marketing of such products.
"First National Bank of Omaha violated the trust of its customers by illegally signing them up for credit card add-on products," Cordray said. "The CFPB's track record and this result today shows strong and consistent action against credit card companies that dupe consumers into buying a product they do not want."
First National's average reimbursement to affected customers totals $110 per person. The bank learned about problems with the products when regulators started the probe in 2012, O'Neill said.
Among other things, the CFPB took issue with what it said were overly strict eligibility requirements with First National's in-house debt cancellation product and failure on the bank's behalf to disclose customers' ineligibility. That particular product was not included in the OCC order.
At issue with the Affinion products, with which both regulators took issue, was a requirement for already enrolled and paying customers to mail back a written authorization form to activate full benefits. When that did not happen, or where the authorization was improperly processed, customers were still billed for the services they did not receive.
As part of the OCC order, First National must heighten its oversight of certain third-party vendors.
"To put it into familiar terms, we did not provide our intended customer experience. For this, we provide our sincere apology," O'Neill said.
Affected customers don't have to do anything: For those with balances on either open or closed credit card accounts, the CFPB requires the bank to credit accounts with a balance reflecting the charges they incurred. If the reimbursement is more than the balance, First National must send a check.
Customers with closed or open accounts with no balance will receive checks from the bank, and for returned checks sent to addresses where customers no longer live, for example, First National must "make reasonable attempts" to find where those customers now live.
First National is one of the country's largest issuers of Visa credit cards through its First Bankcard division, which is a significant profit center. The Omaha bank, a division of First National of Nebraska, has $18.4 billion in assets.
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