GE Consumer Finance Unit Faces Two Federal Probes

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 [e-mail] and Alan Zibel at [e-mail]

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