Tuesday, April 1, 2014

CapitalOne: Deceiving Customers (2012)

Capital One Financial Corp. logo

Capital One Financial Corporation or as many people simply call it, Capital One, is a United States bank holding company. It was founded in 1994 in Richmond Virginia by Richard Fairbank and Nigel Morris. Since then this corporation has been very successful. Having over $250 billion in total assets, Capital One is ranked number eight in being the largest bank holding company in the U.S. (in terms of total assets and deposits). This corporation is responsible for handling credit cards, loans whether it be home or auto, and banking along with saving products. With so many different locations, it is almost impossible to not pass by a Capital One bank. There are over 900 branches and 2000 ATMs scattered around the country. Capital One as of today is a growing business with about 40,000 employees all ready to help and serve its customers, or are they?
Back in 2012 this was not the case at all. People who affiliated with Capital One were lying and cheating their customers out of money. Targeting people with bad credit and others who were unemployed, Capital One employees made false claims such as telling customers that enrolling in their services “would improve their credit scores or provide debt forgiveness if they got sick”. Reports also say that over two million clients were pressured into buying unnecessary products, and some were even enrolled for credit card products without granted approval from the customers. In addition, once the customers were billed for the products Capital One made it a difficult task for them to cancel.
When it was all said and done and the Consumer Financial Protection Bureau (CFPB) caught on to capital One’s unethical business tactics, they refused to admit or deny to doing anything wrong. Unlike Capital One the bank would fess up however. Ryan Schneider president of Capital One’s card business stated “We are not accountable for the actions that vendors take on our behalf” (Douglas) Mr. Schneider then went on to blame the agents of the firm, saying that they were not consistent in following the instructions given to them on how the products were intended to be sold, and from there wrong marketing calls were made. In conclusion to the scandal, Capital One had to pay a total amounting to over $200 million for credit card deception. The breakdown is as followed:
“The bank will pay the consumer agency a $25 million fine and $35 million to its regulator, the Office of the Comptroller of the Currency (OCC). Capital One will also refund $150 million to 2.5 million consumers who purchased credit-monitoring and payment-protection services between August 2010 and January.” (Douglas)
Capital One’s way of conducting business was very unethical and many stakeholders suffered from it as a result. Certain employees of Capital one most likely lost their jobs, the owner(s) of this company took a big hit after refunding its customers and paying off the business fines. Stakeholders such as he customers were not really affected negatively, well at least in the end. Although they were cheated out of their money, they were all refunded once the scandal was settled. Knowing Capital One’s business approach we can see if they were following the principles under the four major ethical theories, Individualism, utilitarianism, Kantianism, and virtue theory.

Richard Fairbank, Ceo of CapitalOne
According to Friedman Individualism theory, he says that there is only one goal of a business and it’s to maximize their profit for the owner or the stockholders within the law. Under this theory, Capital One along with the employees involved was attempting to maximize the company’s profits but by no means were they doing it in a lawful manner. By giving clients false information and signing them up for products they didn’t want, Capital One’s profits were probably increasing at a very good pace. However, these same actions are against the law and stakeholders such as the customers suffered from it. After being discovered for their deception by the CFPB profits plummeted. They to pay off $200 million with a chunk of it going back into the pockets of the victims.

Under Utilitarianism, it focuses on how to maximize happiness and pleasure for the greatest number of people. During the scandal, it seemed that Capital One was following the guidelines under utilitarianism. Customers thought they were getting the help they needed and were being brought out of bad debt, getting their credit score improved, and purchasing credit card products that were told to be necessary. At the same time, Capital One was flourishing from the purchases being made. All and all, every stakeholder was being made happy. If all of this was being done with fair methods, all principles under this theory would have been met. Once the firm was discovered for its true colors, utilitarianism was no longer being followed. This probably left many families in shock knowing they were tricked into wasting their earnings. With 40,000 employees to over two million customers, maximized happiness was not being achieved. In addition, happiness may have been retained by the customers once Capital One refunded them for their loss. Happiness was loss by the big corporation not only because of the millions of dollars lost, but for the many customers lost as well.

Kantianism under Immanuel Kant emphasizes the ethical standpoint in which you should do what is right in respect to others, and not what is in your own best interest or motivation. All business transactions should be done with good will. Capital One was not following this theory, and the company was only working for their best interest without taking into consideration the many life’s they were financially hurting. Instead of telling its customers what their corporation was really consisted of and what they truly offered, so that the customer themselves could come to their own consensus on whether or not they wanted to enroll in their business, they felt it was better to give false information so clients could help them achieve what was in their best interest. Working for a bank holding company is a very important job for many reasons. One obvious reason is because people are trusting you with handling their money. Working for a business like this, it is very important to follow Kantianism. Knowing that a client’s financial life is depending on you to some extent, it is crucial you give right ethical guidance to achieving their needs. You should not be thinking of how to make an easy buck.

Virtue Theory
CapitalOne headquarters in McLean, VA
Virtue Theory focuses on four main characteristics, honesty, courage, temperance and justice. The word honesty means to be truthful in all circumstances no matter the consequence with the stakeholder, employees, customers, or anyone else involved with your business. Capital One was anything but truthful to its clients. This whole scandal was ran on false information and could have been prevented if customers were correctly inform with what Capital One had to offer, and good financial guidance was given. Capital One Targeted unemployed people and others with bad credit scores and told them what they wanted to hear, knowing they were desperately in need for help. This resulted in purchases for all the wrong reasons. If following the virtue theory, Capital One would have told the facts and accepted whatever decision their customers came up with, regardless of the consequences. Courage is to stand up for what is right no matter the adversity. I think this characteristic tags along with honesty. The employees should have the courage to sell their product without having to lie in order to get that sale. That was not the case at all. Signing people up for credit card products without them knowing is wrong and more of a cowardly act. Justice is to be fair to all stakeholders, and it also includes hard work good ideas and fair practices. The corporation was not fair to its clients and they cheated them out of their money. The President of Capital One’s card business claimed that instructions on how to sell their products were not being followed and wrong marketing calls were being made. This shows the lack of hard work and effort that was being put into the business. Being inconsistent with following the correct procedures it led to unfair practices, lying.

Douglas, Danielle. "Capital One to Pay $210 Million for Deceptive Credit Card Practices." Washington Post. The Washington Post, 19 July 2012. Web. 1 Apr. 2014. 

"Time.com." Business Money CFPB Shows Its Teeth Capital One Fined 210 Million For Deceptive Marketing Comments. N.p., n.d. Web. 1 Apr. 2014. 

The Wall Street Journal. Dow Jones & Company, n.d. Web. 31 Mar. 2014. 

Salazar, Heather. "Kantian Business Ethics." March 30. 2014.

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