By Ted Mann and Alan Zibel
General Electric Co.'s retail credit business is facing a pair
of probes from federal regulators over possible violations of
consumer financial laws, disclosures that were released in
paperwork for a planned initial public offering of the
business.
Synchrony Financial, the new name of GE's consumer-credit arm,
said in filings with securities regulators last week that it is in
discussions with the Consumer Financial Protection Bureau related
to "debt cancellation products" and marketing practices for those
services. It is also in talks with the Justice Department to
resolve a separate issue investigated by the CFPB involving a
potential violation of federal lending discrimination laws for
excluding Spanish-speaking customers from settlement offers, the
filing said.
The probes follow a December settlement between GE Capital and
CFPB to resolve allegations that its medical credit-card division,
CareCredit, enrolled borrowers in financing plans for medical and
dental procedures without providing adequate explanation of the
loan terms. GE agreed to refund up to $34.1 million to customers
who file reimbursement claims, but didn't admit or deny the
allegations.
GE is spinning off the consumer-credit operation as part of
Chief Executive Jeff Immelt's push to reduce GE's reliance on
financial-sector earnings, which investors don't value as highly as
those from its industrial operations because of perceived higher
risks. GE Capital, its finance arm, is more tightly regulated now
under the watch of the Federal Reserve and is considered
"systemically important," a designation that increases
oversight.
It isn't clear what penalties or restitution, if any, Synchrony
could be required to pay. But rivals who face similar scrutiny from
the CFPB for debt cancellation products have paid several hundred
million dollars apiece to settle complaints.
A DOJ spokeswoman declined to comment. A CFPB spokesman declined
to comment on GE Capital.
"We recognize we make mistakes, but we are committed to a
process of continuing improvement," GE Capital spokesman Russell
Wilkerson said in an email. "We work cooperatively with regulators
to address issues as they arise and fix them quickly."
In the Synchrony filing, the company says it caught the
Spanish-language filing problem as part of an internal audit and
notified the CFPB of the oversight. The issue came from the failure
to print Spanish-language versions of settlement notices for
delinquent customers. The DOJ has launched a civil investigation,
the filing said.
The CFPB in 2010 signed an agreement with the Justice Department
to collaborate on enforcement of federal antidiscrimination laws.
Since then, the agencies have been cooperating on investigations of
alleged discrimination in automotive lending, among other
issues.
Aracely Panameño, director of Latino affairs at the Center for
Responsible Lending in Washington, said Spanish-speaking consumers
are often the last to find out about recalls or other
interventions, and can be overly trusting of financial offers.
"That's what makes them ripe for predatory actors and ripe for
abuse," she said.
The CFPB, created in the Dodd-Frank financial overhaul of 2010
to police the financial system for consumer-finance abuses, has
been aggressive in its pursuit against credit-card products known
as "add-ons" that companies say offer extra protection to
customers. Regulators say the card companies' marketing of these
products has been deceptive and the benefits fewer than
advertised.
The agency has reached settlements with four major credit-card
companies over complaints that they allegedly misled consumers
about the value of extra services such as lost-income protection
and identity-theft monitoring.
In a $76 million settlement with American Express Co., the CFPB
said the company led some consumers to believe that a "payment
protection" product would cancel monthly payments if they became
disabled or lost their job. The agency said consumers weren't aware
of the fine print--that benefits were capped at $500.
AmEx didn't admit or deny the allegations but said it would no
longer offer the product.
J.P Morgan Chase & Co, Discover Financial Services Inc., and
Capital One Financial Corp. have all reached similar settlements
with the regulator. J.P. Morgan paid $389 million in fines and
refunds, Discover paid $214 million and Capital One paid $210
million.
Maxwell Murphy contributed to this article.
Write to Ted Mann at ted.mann@wsj.com and Alan Zibel at
alan.zibel@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires