American Express will pay $27.5 million in civil penalties and $85 million in customer refunds to settle claims it violated consumer protection laws. It is the third major credit card company to answer for illegal business practices since July.
Bad credit card company! Bad!
A multi-agency investigation launched after a routine examination in February 2012 found American Express subsidiaries had mishandled a large number of consumer transactions. Richard Cordray, director of the CFPB, said, “Several American Express companies violated consumer protection laws and those laws were violated at all stages of the game — from the moment a consumer shopped for a card to the moment the consumer got a phone call about long overdue debt.”
Duping consumers from the offset, American Express is accused of advertising a credit card with a $300 signing bonus it never delivered. Misleading marketing implied the Blue Sky credit card, offered through the American Express Centurion Bank, came with 22,500 points plus $300 for signing up. A company spokesman said the offer was merely meant to advertise the bonus points had a $300 value. Current Blue Sky cardholders will receive a $300 refund credited to their account. Past cardholders will receive a check in the mail.
The same bank, American Express Centurion, was found to have exercised discriminatory credit scoring practices. Applicants were treated differently on the basis of age. The bank did not implement its full credit-scoring system for applicants over the age of 35.
American Express Centurion Bank and American Express Bank, FSB violated the CARD Act of 2009 by billing late fees on certain cards based on a percentage of the debt. American Express will refund cardholders all late fee charges plus interest.
And finally, the investigation found American Express had wrongly told cardholders if they paid off old debts, the payments would be reported to credit bureaus and help raise their credit score. In actuality, American Express was not reporting these payments at all. And even if the payments had been reported, the debts were so old they wouldn’t have had an impact on the credit score, anyway. Affected customers will be reimbursed the amount paid to settle debts plus interest.
According to the Fed, American Express ““failed to adequately identify, monitor, and control risks associated with the services provided.” Bank employees who pitched the credit cards were not trained sufficiently or given the necessary information about applicable federal laws. America Express has 90 days to submit a plan for improving firm-wide compliance.
Credit card cons
The settlement was announced only a week after Discover’s agreement to pay $200 million in consumer refunds for deceptive telemarketing. Similarly in July, Capital One was ordered to refund $140 million for bullying customers into buying unnecessary financial products. This is all thanks to the newly created Consumer Financial Protection Bureau. The fledgling agency was created under the 2010 financial overhaul law with the goal of shielding consumers from hidden fees and other financial hazards. The American Express case is only the bureau’s third large enforcement action.
Kent Markus, assistant director of enforcement for the CFPB, said the case should send a cruial message to other financial institutions. There are and have always been strong trends of consumer abuse amongst credit card issuers. Even American Express, renowned for superb customer service and an affluent clientele, has proved to harbor detrimental tendencies. “We want to make it more expensive to break the law than to abide by it,” Markus said.