American Express Co. (AXP) has agreed to pay $75.7 million to settle claims from U.S. financial regulators that it used deceptive marketing practices to sell protection services to credit-card customers.
The company must pay $59.5 million in restitution to more than 335,000 harmed customers, according to the deals announced today by the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau. The biggest credit-card issuer by customer purchases violated the law when it misrepresented the costs and benefits of its add-on products, the agencies said.
“We first warned companies last year about using deceptive marketing to sell credit card add-on products, and everyone should be on notice of this issue,” Richard Cordray, director of the consumer bureau, said in a statement. “Today we are refunding thousands of American Express customers who were harmed by these illegal practices.”
The agencies also assessed New York-based AmEx $16.2 million in penalties for misleading customers from 2000 to 2012 and billing them for services they never received, according to the regulators’ orders. The deal also requires the company to fix its practices, including its relationships with third-party vendors. The company didn’t admit or deny wrongdoing, according to the orders, which focused on multiple AmEx units.
AmEx said in a statement today that it has already paid most of the restitution and stopped marketing the products in the settlements more than a year ago.
“American Express has cooperated fully with the CFPB, FDIC and OCC,” the company said in the statement, adding that it “continues to conduct internal reviews designed to identify issues, correct them and ensure that its products and practices meet a high standard of quality.”
Regulators had penalized the company last year for other violations related to credit-card add-on products in a deal that totaled $112.5 million. In that settlement, the firm was accused of deceiving customers who signed up for certain cards, leading them to believe they would receive benefits they didn’t.
American Express rose to a record $88.69 in New York trading today. The shares have climbed 54 percent this year, the second-best performance in the Dow Jones Industrial Average. In October, AmEx announced third-quarter profits rose 9.3 percent to $1.37 billion.
The regulators have been conducting an industry-wide investigation into the sale of credit-monitoring products, reflected in the consumer bureau’s first enforcement action taken against Capital One Financial Corp. (COF) in July 2012. Capital One paid $210 million in penalties and restitution, and accepted restrictions on how it markets the products.
Bank of America Corp. has been negotiating with the consumer bureau to settle allegations it also deceived customers of add-on products, according to two people briefed on the talks. Including Bank of America, the CFPB’s investigation has reached all of the top six credit-card issuers, which account for 68 percent of the market by loans outstanding, according to data compiled by Bloomberg.
The agency also reached settlements with Discover Financial Services (DFS) and JPMorgan Chase & Co (JPM), and Citigroup Inc. said in March it may face penalties from U.S. regulators over the sale of the products.