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Lessons Learned from the American Express Settlement

by on October 16, 2012

American Express is the latest card company to come under fire by the federal government. In a routine examination, multiple government agencies found AmEx subsidiaries guilty of deceptive marketing practices and unlawful billing and debt collection. The lawsuit is the third such case against a credit card company, following suits against Discover and Capital One.

Bad credit? We’ve got you, they said.  Got a complaint?  No problem.  Call (555) 555-5555.  Looking for rewards?  Sign here.

Many of these crimes are violations of the CARD Act, a statute put in place in 2009 to protect consumers. Dr. Jim Hawkins, a professor at the University of Houston’s law center who’s conducted studies of the statute, had this to say about the Act and card companies’ response:

The CARD Act did a lot to help consumers, so it is worth the time to look at the changes it made to the law. Companies are working to comply with the new restrictions, but some are also working on ways to comply with the law while engaging in some similar practices to what the law prohibits.

In my own research, I found that companies are still actively marketing card to college students and partnering with colleges to market cards, despite provisions in the CARD Act that sought to limit this behavior.

In short, proceed with caution as you look at card deals. If you’re worried a card company will (unlawfully) hand you a raw deal, read the accusations against American Express below, and learn how to parse out the good from the bad.

The American Express settlement, Sparknotes version

The crime: American Express falsely advertised its Blue Sky credit card. Ads suggested that the card carried 22,500 points as well as a $300 signing bonus, but the cash never materialized. What American Express meant to say—or should have said—was that it offered 22,500 points, a $300 value.

The takeaway: Read the fine print. A full list of benefits, terms, and conditions are sometimes hard to find on a card company’s site—perhaps purposefully—but it’s worth the search.

The crime: American Express forwent full credit-scoring of applicants over the age of 35.  The federal government thus charged the company with age discrimination.

The takeaway: Know that when you apply for a credit card, you will always be subjected to a credit check! It’s true that age can affect your score, with a legitimate rating system—old age can only lower your score, not raise it. Age, however, should not let a credit-card applicant bypass altogether any part of a scoring system.

The crime: American Express billed late fees based on a percentage of debt. These charges violated the CARD Act of 2009, a federal initiative to protect consumers from falsely advertised or otherwise-unfair financial products.

The takeaway: If something feels fishy, check federal laws. The website of the Consumer Financial Protection Bureau is a great resource to read up on credit card laws and protections. Like the CARD Act before it, the Bureau was created in 2010 to protect consumers from shady finance deals.

The crime: American Express told its customers that if they paid off old debt, then their credit score would improve. This lie may be AmEx’s most blatant and egregious: the card giant failed to report the repayments. Moreover, stale credit card debt has little impact on your credit score.

The takeaway: Learn how to improve bad credit the right way.

The crime: American Express failed to report consumer disputes to the proper authorities.

The takeaway: If you’ve disputed your credit score with your card provider, follow up with a consumer reporting agency to ensure they’ve filed the complaint. You can find a list of agencies and their phone numbers on ConsumerFinance.gov. If you’d like to file a complaint, you can fill out a form on the website of the Consumer Financial Protection Bureau.

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