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TheStreet Open House

Capital One Makes a 'Creepy' Mistake

NEW YORK (TheStreet) -- Capital One (COF - Get Report) can be a little annoying at times, especially when you receive multiple credit card offers from the lender over the course of just a few days. But the company suffered from a lapse in judgment when it recently sent updated credit card agreements to its customers, and its attempt to stifle an outcry has so far been pathetic. 

While the updated credit card agreement didn't contain much in the way of new information on the company's collections practices, the language was alarming in some ways, and may have been subject to greater scrutiny by some customers brought aboard when Capital One purchased HSBC's (HSBC) U.S. credit card portfolio in 2012.

The Los Angeles Times on Monday described the terms of Capital One's updated credit card agreement as "creepy," since the new agreement includes language saying the company can make collection efforts by contacting a customer "in any manner we chose," including a "personal visit."

The bank made clear it could visit you at home or even at your place of work, when trying to persuade you to pay your late bill.

"The police need a court order to pull off something like that. But Cap One says it has the right to get up close and personal anytime, anywhere," according to the Los Angeles Times article.

Really? Maybe the newspaper has a point that visiting a customer at work is a bit extreme, but nobody needs a court order to visit your home. After all, salespeople make unexpected visits to homes, as do Jehova's Witnesses.

In my experience in mortgage loan servicing at a community bank, collectors will call peoples' homes, call their neighbors for advice on how to contact the borrower, make personal visits, and do pretty much anything they can to make contact with the borrower. This is because the contact can lead to positive results for the lender, even if the borrower has been trying to avoid contact.

"You're being very polite, so I am going to pay my bill this month. That's all I'm asking for, a bit of respect. If you were rude, I would certainly not pay the bill." This is what a mortgage loan customer who was late (but not very late) on her bill said to me once. I waived the late fee, and also learned a great deal, all in one call. Some customers have to be called each month just to get them to make the payment. And you have to ask nicely. And it's worth it.

Getting back to Capital One, the company seems to have blundered in saying in the new credit card agreement, "We may modify or suppress caller ID and similar services and identify ourselves on these services in any manner we choose."

So not only would Capital One remove your ability to identify the caller before answering the phone, they could identify themselves any way they like.

L.A. Times reporter David Lazarus wrote, "Now that's just freaky."

It sure is.

Capital One Answers the Critics

Following an outcry from customers, Capital One on Tuesday issued a statement clarifying its collections practices.

"Capital One does not visit our cardholders, nor do we send debt collectors to their homes or work," the bank said. There is one exception, which is the repossession of vehicles securing loans.

There's certainly nothing exceptional about going the extra mile to repossess a vehicle.

The lender seems to have gotten a little cute when addressing the caller ID issue:

We want our calls to display as Capital One on caller id and that's the way they are programmed. However, some local phone exchanges may display our number differently. This is beyond our control, and we want our cardholders to be aware of that potential occurrence.

OK, so why have language in the new credit card agreement saying you can identify yourself in any way you like?

Comments by a Capital One spokeswoman to Lazarus pretty much mirrored the company's statement, but she also told the reporter the bank was "reviewing this language" in its contracts. Maybe they should have done that before sending out the new contracts.

Even if Capital One has made no actual changes in how it handles collections efforts, this needlessly unfriendly language in the new credit card agreement will bring the company under greater scrutiny. It had better be much more careful going forward if it wants to avoid a major headache.

At this stage of the game, following the credit crisis, the bank bailout, the Dodd-Frank bank reform legislation, the creation of the Consumer Financial Protection Bureau, the drawing up of regulations to prevent many abusive practices of credit card lenders and the mortgage foreclosure debacle, Capital One and other big banks need to work harder to regain customers' trust. Part of regaining trust is changing the tone of communications with customers. Don't try to fool your customers, and be more friendly, more clear and more empathetic when discussing sensitive topics with customers.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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