American Express Pays $112.5 Million Penalty to Settle Claims with CFPB
As part of a settlement reached on Monday, October 1, American Express Corporation has agreed to pay a $112.5 million penalty for alleged consumer-rights violations, including deceptive credit card marketing and debt collection practices. American Express will refund $85 million to approximately 250,000 customers and forfeit $27.5 million in fines to the four regulators who brought the enforcement action — the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corp., Federal Reserve Board, and Office of the Comptroller of the Currency. The credit card company has until March 2013 to present refunds to its customers, according to the consent orders ( 1, 2, and 3) signed by the parties. The different consent orders were entered into by three American Express subsidiaries that allegedly committed the violations: American Express Centurion Bank (AECB), American Travel Related Services Company Inc., and American Express Bank FSB.
The CFPB alleged violations by the subsidiaries dating back to 2003 and as recent as the spring of 2012. Among other things, the regulators claimed that AECB promised, but never paid, $300 and bonus points to some customers who signed up for its Blue Sky credit card. Allegations of late fees based on outstanding debt (in violation of the Credit Card Accountability and Disclosure Act), age discrimination on card applications, and improper reporting procedures to credit bureaus were also pursued. In addition, the CFPB claimed that American Express employees deceived customers into paying off old debt under the misguided assumption that it would improve their credit scores or reports.
Now What?
This marks the CFPB’s third major enforcement action against financial services companies, following a $210 million settlement in July and a $214 million agreement last week. All three involved allegations of deceptive marketing practices to credit card customers. In a prepared statement, American Express acknowledged that it is “strengthening its internal compliance processes and will continue to work closely with its regulators.”
Financial services companies must continue to review their internal compliance procedures on a regular basis, including complaints filed by its consumers, as the CFPB has been focusing its time on companies with the most unsatisfied complaints. The CFPB has established itself as an activist organization. While the CFPB’s attention, thus far, has been paid to larger companies and major settlement figures, with a focus on credit card practices, it seems inevitable that the CFPB will continue working down a priority list with the same activist approach. Financial services companies of all types and sizes, however, should take notice of the Bureau’s ongoing activities as their turns are likely coming.
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