American Express to refund $85 million to 250,000 customers

Feds allege marketing, debt collection practices broke several consumer laws

By Martin Merzer

Now, a third shoe has dropped. American Express agreed Monday to refund $85 million to 250,000 credit card customers victimized by a systematic series of illegal marketing, payment and debt collection practices.

The action, taken in response to investigations by federal and state banking and consumer protection agencies, comes in the wake of similar settlements recently signed by Capital One Bank and Discover.

In all, 5.75 million U.S. credit card customers have been awarded $445 million in refunds since mid-July, all due to shoddy credit card marketing, qualification, payment or debt collection activities.

Laws broken 'at all stages of the game'
In the latest case, the Consumer Financial Protection Bureau (CFPB) said Monday that three American Express subsidiaries violated consumer protection laws "at every stage of the consumer experience."

"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," CFPB Director Richard Cordray said in a statement that announced the settlement.

"Today's orders require the American Express companies to fully refund about $85 million to consumers and it requires them to make specific changes in their business practices," he said. "The American Express companies will identify the harmed customers, notify them and make sure they get back their money."

The cited subsidiaries are the American Express Centurion Bank, the American Express Travel Related Services Co. and American Express Bank, FSB. Joining the CFPB in the investigation and settlement were the Federal Deposit Insurance Corp., the Federal Reserve System, the Office of the Comptroller of the Currency and the Utah Department of Financial Institutions. American Express Centurion Bank is based in Utah; some violations were first discovered during a "routine" bank examination by the Utah regulators and FDIC, then the probe expanded.

For customers who believe they were affected by the violations, the CFPB has published details regarding American Express compensation amounts and procedures.

Company response
Representatives of American Express said Monday that the company has "cooperated fully" and is "strengthening its internal compliance processes."

"We worked closely with the regulators ... ," said Michael O'Neill, an American Express spokesman. "We took responsibility for correcting the issues and are compensating customers where appropriate."

The actions announced in July against Capital One and this past Friday against Discover focused primarily on the deceptive marketing of credit monitoring programs and payment protection plans, the oft-criticized pseudo-insurance plans that cost a lot and generally deliver a little.

• Capital One was order to refund $150 million to more than 2 million credit card customers because it failed to control third-party vendors who duped people by employing high pressure tactics to monitor those services. Cap One also was ordered to pay $60 million in penalties.
  
  It was the first enforcement action taken by the CFPB, which began operations in July 2011. "We are putting companies on notice that these deceptive practices are against the law and will not be tolerated," Cordray said at the time. Capital One apologized to its customers, saying the marketing practices were "inconsistent with the explicit instructions we provided to agents for how these products should be sold."

• About 3.5 million Discover credit card customers will share $200 million under the settlement announced last week. Discover also will pay $14 million to federal agencies in penalties.
  
  "We have worked hard to earn the loyalty of our card members, and we are committed to marketing our products responsibly," said David Nelms, chairman and chief executive officer of Discover, in a press release issued Friday at 5 p.m. Eastern, a time companies often choose to release bad news. "As always, we will continue to strive to deliver the highest standards of customer service and satisfaction."

Violations go back to 2003
The settlement announced Monday with American Express surrounded more-varied practices. According to federal regulators, the AmEx violations began in 2003 and continued, at various points in time, into this past spring.

Through those actions, American Express managed to breach virtually every major federal consumer protection law.

For instance:

• Some customers who joined the American Express "Blue Sky" credit card program were led to believe they would receive $300, but they did not. This violates federal laws regarding deceptive practices.

• Some American Express customers were billed for late fees based on a percentage of the debt. This violates the Credit CARD Act of 2009.

• Some applicants for American Express cards were secretly subjected to a credit scoring system based on their age. This violates the Equal Credit Opportunity Act.

• Two American Express subsidiaries failed to report certain customer disputes to credit bureaus, a violation of the Fair Credit Reporting Act.

• All three cited subsidiaries deceived consumers about the benefits of paying off old debts, suggesting that such payments would improve their credit scores. "In fact, American Express was not reporting the payments and the debts were so old that even if they had tried to report them, many of the payments would not have appeared on these consumers' credit reports or affected their credit scores," the CFPB said.

• American Express also told some consumers that a portion of their debt would be waived or forgiven if they accepted certain settlement offers. But for customers who applied for a new American Express card, the company was not really forgiving or waiving the debt. This also is an apparent violation of federal laws prohibiting deceptive practices.

Under the settlement, the American Express subsidiaries agreed to end the illegal practices, pay $27.5 million in civil penalties and issue refunds and other compensation to all affected customers.

"Impacted customers will be notified as soon as possible ... ," the company said Monday. "Separately, the company is continuing its own internal reviews and is also cooperating with regulators in their ongoing regulatory examination of add-on products in accordance with an industrywide review."

Published: October 1, 2012

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