American Express Must Refund $85 Million to Customers

by Michael Heygood

American Express has been ordered to refund an estimated $85 million to approximately 250,000 customers as a result of an enforcement action by the Consumer Financial Protection Bureau. According to the agency, several American Express bank programs violated consumer protection laws “[a]t every stage of the consumer experience, from marketing to enrollment to payment to debt collection.”

Deceptive Marketing Practices

According to findings in the Joint Consent Order, American Express customers were sometimes misled to believe they would receive $300 in addition to bonus points if they signed up for the “Blue Sky” credit card. American Express sent direct mail solicitations which included a shaded box listing the benefits. The first benefit listed was a “$300 Bonus Offer.” The solicitations prominently displayed “22,500 bonus points receive a bonus $300” or “22,500 bonus points earn a bonus $300.” In fact, consumers meeting the bonus qualification requirements received only the points but did not receive the $300 bonus advertised. This is a violation of the Consumer Financial Protection Act which prohibits unfair, deceptive, or abusive acts or practices.

Age Discrimination

American Express also used a credit scoring system that treated card applicants differently on the basis of age. Between February and October 2010, American Express used a partially implemented age-split score card that functioned as an improper second look for card applicants age 35 years old and under. This violated the Equal Credit Opportunity Act because it requires credit scoring systems that take age into account to be properly designed and implemented.

Unlawful Fees on Existing Accounts

In addition, American Express billed late fees on certain charge cards based on a 2.99 percent portion of the customer’s delinquent balance in violation of the Truth in Lending Act, as amended by the Credit CARD Act.

American Express offered consumers the option of having a hybrid account for a charge card with revolving credit features that allowed the consumers to pay a portion of their outstanding balances over time. Under section 1026.52(b)(1) of Regulation Z, American Express was permitted to charge consumers with these accounts a late fee based on costs or based on a safe harbor provided in the regulation. However, instead of basing the fees on cost or charging fees of a specified dollar amount as permitted by the safe harbor, American Express unlawfully charged consumers 2.99% of a portion of their delinquent balance.

Consumer Disputes

Another legal violation occurred when American Express failed to report certain consumer disputes to consumer reporting agencies. This is a violation of the Fair Credit Reporting Act.

Although federal law required American Express to report to credit reporting agencies when a consumer disputed information it reported to the credit reporting agency, American Express created a system that failed to report to the credit reporting agencies. Depending on American Express’s own investigation of the dispute, it either asked the credit reporting agency to delete the information or reported the information to the credit reporting agency without indicating the dispute, all in violation of federal law.

Deceptive Debt Collection

Finally, all three of American Express’s subsidiaries told certain consumers that settling old debt — debt that had been in collections or had already been charged off— would be reflected on their credit report and that payment could improve their credit score. But, in fact, the entities did not report such debt to the credit reporting agencies and the debt was so old that it may not have appeared on a credit report. The American Express subsidiaries also sent letters to consumers saying that after they paid off their old debt, the consumer’s remaining debt would be waived or forgiven. But for customers who applied for a new American Express card, the company was not really forgiving or waiving the debt. American Express failed to prominently disclose that the consumer had to have paid the full balance before the bank would process any future credit or charge card application. These actions by the subsidiaries violate the Consumer Financial Protection Act which prohibits unfair, deceptive, or abusive acts or practices.

The Enforcement Action Order

According to the Joint Consent Order, American Express has agreed to the following to remedy the violations at issue:

  • American Express must stop deceiving consumers with Blue Sky credit card marketing or any other card marketing by falsely promising a rebate or points feature.
  • American Express will not charge illegal late fees.
  • American Express will not unlawfully discriminate based on age when it comes to credit decisions.
  • American Express will properly report disputes to credit reporting agencies and will make sure that cardholders are told about their rights regarding credit disputes.
  • American Express will exercise effective oversight and control over its service providers.
  • American Express will pay an estimated $85 million to approximately 250,000 consumers who were illegally charged, or who had money illegally collected or withheld. Specifically, consumers who responded to deceptive marketing and paid off old debt in full will be reimbursed. Consumers whose debt was not forgiven as promised will receive $100 and a pre-approved offer for a new card with terms acceptable to the CFPB and FDIC. Any of these consumers who previously paid the waived or forgiven amount in order to get a new card will be refunded that amount plus interest. Blue Sky customers who were promised $300 for signing up will get their $300. Consumers who paid an illegal late fee will be reimbursed, with interest. American Express will also be required to certify that all qualified consumers who suffered unlawful age discrimination have an opportunity to reapply for a card.
  • American Express customers can expect to receive their payouts no later than March 15, 2013.
  • American Express will contact the current and former cardholders directly. If the consumers are still American Express customers, they will see a credit in their account. If they no longer have a credit or charge card account or outstanding balance with American Express, they will receive a check in the mail.
  • Compliance with the terms of the Consent Order will be assured through the work of an independent auditor.
  • The three American Express subsidiaries will be fined $14.1 million in total civil monetary penalties by the CFPB. American Express Centurion Bank will be fined $3.9 million by the FDIC. American Express will be fined $9 million by the Federal Reserve Board. And American Express Bank, FSB will be fined $500,000 by the Office of the Comptroller of the Currency.

The Joint Consent Order is available online here: