WASHINGTON — More than 3.5 million Discover credit card customers will share $200 million in refunds in the wake of a federal investigation that determined the bank tricked people into signing up for payment protection plans and other add-on services.

The Consumer Financial Protection Bureau and Federal Deposit Insurance Corp. found that Discover Financial Services telemarketers often talked faster when explaining fees and terms as they pitched the services, leading customers to think there was no additional fee, the regulators said Monday.

The services cost about $3 to $10 a month.

Banks have been searching for new sources of revenue in the face of a tough economy and tighter regulations. Bankrate.com said Monday that banks have significantly boosted the average required minimum balance for free checking accounts to $723 this year, and have raised other fees, such as ATM surcharges, to record highs.


But sometimes that search runs afoul of regulators.

In addition to the refunds, Discover agreed to pay $14 million in civil penalties as part of a consent order to settle allegations of deceptive marketing tactics. In July, Capitol One agreed to refund $150 million to its credit card customers and pay $60 million in civil fines to settle allegations of deceptive marketing practices by the bank’s call center vendors in selling similar products.

Consumer advocates said the enforcement actions show that the new consumer bureau is on the job.

“Banks have been doing this for years, but we never had a regulator who protected consumers before,” said Ed Mierzwinski, director of the consumer program for the U.S. Public Interest Research Group.


Discover agreed to provide the refunds to customers who were charged for at least one of the products from Dec. 1, 2007, to Aug. 31, 2011. The refunds will depend on when the product was purchased and how long the customer kept it.

Consumers will not have to apply for the refunds, the agencies said. People who are still customers will get a credit on their account. Former customers will receive a check.

Discover did not admit or deny the allegations.

“We have worked hard to earn the loyalty of our card members, and we are committed to marketing our products responsibly,” Discover Chief Executive David Nelms said.


Regulators said scripts for Discover’s telemarketers “contained misleading language likely to deceive consumers about whether they were actually purchasing a product.”

In addition to a payment protection plan — which enabled customers to stop making payments if they lost their jobs or had another qualifying event — the investigation covered programs dealing with credit score tracking, identity theft protection and Discover’s Wallet Protection, which helped cancel cards if they were lost or stolen.

jim.puzzanghera@latimes.com