American Express to Pay Millions in Refunds and Fines

By: Jeffey B. Lapin

The Consumer Financial Protection Bureau (CFPB) along with other federal agencies announced on October 1, 2012, that American Express Co. (AMEX) will pay $112.5 million in refunds and fines. These agencies alleged that three AMEX subsidiaries violated a number of federal laws with regard to credit cards, credit reporting and debt collection. Nearly $85 million of this money will go to approximately 250,000 customers eligible consumers.

INVESTIGATION

The CFPB’s October 1, 2012, announcement that AMEX will pay $112.5 million stemmed from a routine investigation in February 2011 by the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions of American Express Centurion Bank, a state-chartered industrial bank and an AMEX subsidiary. When the CFPB acquired jurisdiction of consumer financial laws in July 2011, it joined in the investigation.

During the examination, CFPB examiners found violations by two other AMEX subsidiaries: American Express Bank, FSB; and American Express Travel Related Services Company, Inc., which is the parent company to American Savings Bank, FSB and American Express Centurion Bank. Throughout the investigation into these AMEX subsidiaries, other federal agencies got involved and found additional violations. These other agencies include the Office of the Comptroller of the Currency and the Federal Reserve Board.

VIOLATIONS

CFPB Director Richard Cordray stated:

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.”

In addition, Kent Markus, the CFPB’s Assistant Director of the Office of Enforcement, told reporters:

From the moment we learned of the wrongdoing at American Express, we have been troubled by the range of problems that our examination process uncovered. The legal violations we discovered spanned the lifecycle of the consumer’s experience with American Express cards.

The investigations found that these AMEX subsidiaries violated customers rights, at various times, starting in 2003 until Spring 2012. Violations were found at every stage of the consumer experience including: shopping for cards; applying for cards; paying charges; and paying off debt. More specifically, investigators alleged these some of these AMEX subsidiaries:

• Deceptive practices: Consumers who signed up for the American Express “Blue Sky” credit card program were sometimes led to believe they would receive $300 in addition to bonus points if they signed up for this program, which they never did receive.
• Charged unlawful late fees: Violated the Credit CARD Act by charging late fees on certain cards based on a percentage of the debt owed, which is impermissible under the Act.
• Age Discrimination: Using a credit scoring system that treated charge card applicants differently on the basis of age. For a period of time the system was not fully implemented for applicants over the age of 35. This is a violation of the Equal Credit Opportunity Act.
• Failed to report consumer disputes to consumer reporting agencies: In violation of the Fair Credit Reporting Act (FCRA), AMEX failed to report the existence of certain customer disputes to credit bureaus.
• Misled consumers about debt collection: Consumers were deceived into believed there were certain benefits to paying off old debt. Consumers were wrongly told that if they paid off the old debt, the payment would be reported to credit bureaus and could improve their credit scores. AMEX did not report any payments and some of the debts were so old that the payments would not have appeared on these consumers’ credit reports or affected their credit scores anyway. In addition, some consumers were told that a portion of their debt would be waived or forgiven if they accepted certain settlement offers. However, for customers who applied for a new AMEX card, the company really did not forgive or waive any of the debt.

ENFORCEMENT AND ORDERS

CFPB, AMEX and the other agencies involved, entered into “Joint Consent Order, Joint Order For Restitution, And Joint Order To Pay Civil Money Penalty” with the three AMEX subsidiaries. Basically, a “consent order” is when the defendant, AMEX, without admitting or denying any wrongdoing, permits an order to be entered requiring them to do one or more things. In the Consent Orders, AMEX agreed to, among other things:

• End the illegal practices. The companies involved agreed to the following: stop falsely promising a rebate or points feature; not charge illegal late fees; properly reporting disputes to credit bureaus and informing consumers of their rights regarding such disputes; and stop discriminating based on age.
• Full repayment of an estimated $85 million to approximately 250,000 consumers. Customers entitled to money include those that were: misled into paying old debt; promised their debt would be forgiven and who were denied new credit cards because the debt was not really forgiven; “Blue Sky” customers who were promised $300; or who paid an illegal late fee.
• Convenient repayment for consumers. The AMEX companies are responsible for notifying all affected consumers. AMEX expects that all consumers will receive a check or a credit on their account no later than March 15, 2013.
• Inform consumers of their debt collection rights.
• Pay a civil monetary penalty of $27.5 million. This money will be split among the various federal agencies involved in the investigation.

With regard to the investigation Mr. Markus remarked:

I want to commend the American Express companies for their cooperation in resolving this matter. They worked with us to resolve the legal violations and provide compensation for harmed consumers.

In a very short time the CFPB has obtained Consent Orders against two major credit card issuers. On September 24, 2012, Discover Bank agreed to refund consumers approximately $200 million and pay a $14 million civil penalty.

SOURCES

The information contained within this Post comes from the following:

• CFPB orders American Express to pay $85 million refund to consumers harmed by illegal credit card practices
• Order: American Express is responsible for compensating customers for illegal practices
• Remarks by Kent Markus in an American Express enforcement action press phone call
• Ending Illegal Credit Card Practices

PRIOR POSTS INVOLVING THE CFPB

• Discover Bank To Refund $200 Million for Deceptive Marketing
• The CFPB’s First Fourteen Months
• CFPB Launches Consumer Complaint Database
• CFPB Proposes Rule to Define “Larger Participants” It Will Monitor

ABOUT LAPIN LAW OFFICES

Lapin Law Offices represents clients throughout Nebraska against debt collectors and credit card companies that violate the Fair Credit Reporting Act. You can learn more about your rights by calling us at 402-421-8033 (Lincoln) or 888-525-8819 (Toll Free), submitting your case online (Contact Us) or through our websites: Lapin Law Offices or StopBadCollectors.com.  We offer a free consultation and do not charge an attorney fee unless we collect money for you.