Amex settles allegations of law violation, agrees to customer refunds

Posted: October 03, 2012

American Express will pay more than $112 million in refunds and civil penalties to settle allegations that it deceived customers and violated laws governing debt collection, late fees, and other lending practices.

About 250,000 cardholders will receive an average of $340 each under the agreement announced Monday by the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corp. The CFPB said American Express violated consumer-protection laws "at every stage of the consumer experience, from marketing, to enrollment, to payment, to debt collection."

The deal ends an inquiry that began in February 2011, when the FDIC and Utah regulators discovered violations during a routine examination of American Express Centurion Bank, an Amex subsidiary in Salt Lake City. Because of Amex's complex structure, the inquiry eventually came to involve two other subsidiaries, the Office of the Comptroller of the Currency, and the Federal Reserve.

In a statement announcing the settlement, American Express said it had cooperated fully with the inquiry and had "developed remediation plans for each of the cited violations," which date as far back as 2003. "The company is strengthening its internal compliance processes and will continue to work closely with its regulators," it said.

The CFPB said Amex would make refunds directly to affected customers. It said the violations included:

• Deceiving customers who signed up for a "Blue Sky" card into believing they would get a "$300 Bonus" rather than the rewards points they received.

• Failing to report customers' disputes over charges to credit bureaus, as required by the Fair Credit Reporting Act.

• Charging late fees calculated as a percentage of a customer's outstanding balance.

• Misleading consumers about old debts, by wrongly suggesting that some debt would be "waived or forgiven" and by wrongly suggesting that payments toward old debt "would be reported to credit bureaus and could improve their credit scores." The CFPB said that Amex was not reporting the payments, and that even if it had, some of the debts were so old "many of the payments would not have appeared on these consumers' credit reports or affected their credit scores."

Amex may still face further regulatory action by the CFPB, which recently settled with two other card issuers, Capital One and Discover Bank, over deceptive marketing of add-on products such as identity-theft protection and credit monitoring.

Amex said it was "also cooperating with regulators in their ongoing regulatory examination of add-on products in accordance with an industry-wide review."

Contact Jeff Gelles at 215-854-2776 or

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