The Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions uncovered the issues during a routine examination in February 2011. The case was then passed on to the Consumer Financial Protection Bureau (CFPB), which put forward an enforcement action on 1 October 2012.
American Express and four subsidiaries, namely American Express Centurion Bank, American Express Bank, FSB, and American Express Travel Related Services Company were found guilty of:
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- Engaging in deceptive practices in relation to a USD300 reward scheme associated to the Blue Sky credit card programme, as eligible customers who enrolled in the programme never received the bonus,
- Charging unlawful late fees,
- Unlawfully applying a credit scoring system that discriminated applicants on the basis of age,
- Failing to report consumer disputes to consumer reporting agencies, and
- Misleading consumers about old debts, promising that if they had paid them off, American Express would have reported the repayment to credit agencies to improve consumers credit records, or their debts would be forgiven.
Richard Cordray, CFPB director said: Several 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.
The authorities ordered American Express to refund 250 000 affected customers with direct debit or by sending cheques by post, without the need for them to make a claim.
American Express also agreed to pay fines totalling USD27.5m.
American Express said in a statement: Reserves were established in previous quarters for a substantial portion of these fines and the estimated cardmember refunds. 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 industry-wide review.
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By GlobalDataThis is the latest of a series of enforcement actions undertaken by the CFPB against major US card issuers, after the agency was set up in July 2011.
In September 2012, the CFPB ordered Discover Financial Services subsidiary Discovery Bank to refund customers USD200m over charges of misleading marketing practices.
In July 2012, credit card issuers Capital One agreed to refund customers USD150m over similar charges.
