American Express must pay $112 Million in Penalties

Four separate federal enforcement agencies working together have concluded that American Express committed a host of compliance violations, going all the way back to 2003. The Consumer Financial Protection Bureau ("CFPB") announced on October 1, 2012 that it had settled an enforcement action (conducted jointly with the Office of the Controller of the Currency ("OCC"), the Federal Deposit Insurance Corporation ("FDIC") and the Federal Reserve) against American Express Bank, FSB and American Express Centurion Bank, their parent company and its holding company.

The investigation alleged that American Express

  • Violated the Dodd-Frank Act and the FDCPA's prohibition against unfair, deceptive or abusive acts or practices by doing the following --
  • Using credit card solicitations that made consumers think they would receive $300 in addition to bonus points if they signed up for the card.
  • Making debt solicitations that led consumers who settled their old debt to believe that the settlement would be reflected on their credit reports, would improve their credit scores and that their remaining debt would be waived or forgiven. In reality, the settled debts were not reported to reporting agencies and in many cases were so old that they did not appear on consumer's credit reports in the first place. And as to the remaining debt, the reality was that applications for new cards would not be processed until the old debt was paid off.
  • Violated the Equal Credit Opportunity Act's requirement for a credit scoring system to be properly designed and implemented by failing to fully implement for applicants over age 35 a system that treated applicants differently based on age.
  • Violated the Truth in Lending Act, which places limits on credit card late charges, by imposing late charges equal to 2.99 per cent of the customer's balance.
  • Violated the Fair Credit Reporting Act by failing to report consumer disputes to consumer reporting agencies.

The settlement requires the two American Express banks to make restitution payments to consumers totaling $85 million. In addition, the two banks, their holding company and its parent company are required to pay a total of $27 million in civil monetary penalties to the four government enforcement agencies.

  • Consumers charged late fees greater than $35 will receive refunds of the excess amount, plus interest;
  • Consumers who were charged late fees greater than $35 will receive a refund of the excess amount, plus interest;
  • Consumers who settled their accounts and were denied a new credit card will receive $100 and a pre-approved offer for a new card on terms approved by the CFPB and FDIC; In addition, the banks are prohibited from denying future applications because the consumer did not repay the entire balance. Customers who paid the "waived or forgiven" amount to receive a new card will be refunded that amount, plus interest;
  • Consumers who made payment on debts not reported to consumer reporting agencies will be refunded the amount they paid, plus interest;
  • Consumers who opened a credit card account after receiving a solicitation that indicated they would receive $300 for doing so will receive $300;
  • Consumers over the age of 35 who would have been approved for credit under the scoring system that was not fully implemented must be invited to reapply.

Please note that The Langel Firm had no involvement with this investigation and is merely reporting about it. Please go to the CFPB's website if you think you may be affected by the settlement.

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