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."
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
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."
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
Deposit Insurance Corp., the Federal Reserve System, the
Office of the Comptroller of the Currency and the Utah Department of Financial
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
Express compensation amounts and procedures.
of American Express said Monday that the company has "cooperated fully" and is
"strengthening its internal compliance processes."
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."
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."
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
Violations go back to 2003
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.
actions, American Express managed to breach virtually every major federal
consumer protection law.
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.
applicants for American Express cards were secretly subjected to a credit scoring
system based on their age. This violates the Equal Credit Opportunity Act.
American Express subsidiaries failed to report certain customer disputes to
credit bureaus, a violation of the Fair Credit Reporting Act.
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.
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.
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.
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."
See related: Banks dropping payment protection plans, Federal consumer watchdog opens for business
Published: October 1, 2012
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