Capital One to Pay $12 Million Over Military-Lending Claims

Capital One Financial Corp. (COF), the bank that paid $210 million over claims it misled credit-card customers, will pay $12 million to resolve alleged violations against military families, the U.S. Justice Department said.

Under an agreement announced today by the Justice Department and the Office of the Comptroller of the Currency, Capital One will pay $7 million to servicemembers whose homes or motor vehicles were unlawfully seized. The bank also agreed to pay $5 million to military borrowers who didn’t get proper benefits on credit-card accounts and consumer loans.

“Today’s action makes clear that the Justice Department will fight for our servicemembers and use every available tool, resource and authority to hold accountable those who engage in discriminatory practices targeting those who serve,” Attorney General Eric Holder said in a statement.

Regulators and lawmakers have focused on banks’ treatment of servicemembers amid the wave of foreclosures following the 2008 credit crisis, investigating potential violations of the Servicemembers Civil Relief Act, which bars seizure of homes owned by active military members and limits the interest rates they can be charged.

Bank of America Corp. reached a $20 million settlement with the Justice Department in 2011, and banks including JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Wells Fargo & Co. (WFC) agreed in February to conduct reviews to determine whether any servicemembers had faced illegal foreclosures since 2006.

Cooperated Fully

Capital One cooperated fully with the investigation, which resulted in a settlement for servicemembers that is “one of the most comprehensive ever obtained,” said Thomas Perez, an assistant attorney general at the Justice Department. The bank, which resolved the claims without admitting or denying wrongdoing, voluntarily adopted changes including extending a 4 percent interest rate to qualifying servicemembers.

The Justice Department alleged in its complaint that Capital One violated federal law from July 15, 2006, to Nov. 21, 2011, by wrongfully denying requests to have interest rates on car loans and credit cards reduced and foreclosing on mortgages of protected service members without court orders.

The bank lacked “adequate oversight, internal controls, policies and procedures, internal audit, and training” and because of this “caused substantial consumer injury,” the OCC said in its order.

“We sincerely apologize and are providing restitution to our impacted customers, and will be providing lower rates and greater benefits than the law requires to all eligible servicemembers,” John G. Finneran Jr, the bank’s general counsel, said in an e-mailed statement.

‘Add-on’ Products

Capital One on July 18 agreed to pay $210 million to settle charges of deceptive marketing of credit card “add-on” products such as payment protection and credit monitoring in the first public enforcement case brought by the Consumer Financial Protection Bureau. The bureau and OCC oversaw the settlement in which the bank said it would provide restitution to about 2 million customers.

Today’s settlement requires Capital One to take prompt action to fix deficiencies, according to the OCC’s statement. The bank must also compensate all borrowers harmed by the violations, according to the OCC and the Justice Department, who estimated that at least 4,000 people would be eligible.

“Because of the extraordinary hardships of military service, the law provides certain protections to our servicemembers,” Comptroller of the Currency Thomas J. Curry said in a statement. The settlement will “help assure that servicemembers receive every benefit entitled under the law,” he said.

To contact the reporters on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net; Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net; Maura Reynolds at mreynolds34@bloomberg.net

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