American Express Co., the biggest credit-card issuer by purchases, will pay $112.5 million to settle claims it violated consumer safeguards from marketing to collections in products sold to about 250,000 customers.
“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,” Consumer Financial Protection Bureau Director Richard Cordray said today in a statement announcing the settlement.
Units of American Express, which is led by Chief Executive Officer Kenneth I. Chenault, deceived customers who signed up for a particular card, leading them to believe they would get $300 and bonus points, according to the statement. The New York-based firm also charged illegal late fees, discriminated against some older applicants and failed to report consumer disputes to credit-reporting companies, regulators said.
The settlement involves state regulators from Utah, where American Express owns banks, and four federal agencies, according to statements from CFPB and the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp. Under the agreement, the company will refund about $85 million to customers and pay civil penalties totaling $27.5 million to the four federal regulators, with $14.1 million going to the consumer bureau.
American Express neither admitted nor denied regulators’ accusations in today’s settlement, which its board approved on Sept. 24, according to the Fed’s consent order.
“Reserves were established in previous quarters for a substantial portion of these fines and the estimated customer refunds,” Michael O’Neill, an American Express spokesman, said in a statement. “Separately, the company is continuing its own internal reviews and cooperating with regulators in their ongoing regulatory examination of add-on products in accordance with the industrywide review.”
The settlement is the third involving the consumer bureau, which was created by the Dodd-Frank Act of 2010. The agency previously resolved claims against card issuers Capital One Financial Corp. and Discover Financial Services over sales of add-on products such as credit monitoring and debt protection.
Kent Markus, CFPB’s assistant director for enforcement, said the credit-card industry has drawn the agency’s attention as it looks where to focus early on.
“This is an area where there is substantial consumer harm or risk of consumer harm,” he said today in a conference call with reporters.
The case stems from practices at American Express from 2003 to this year, according to the CFPB. Mark Pearce, director of the FDIC’s depositor and consumer protection unit, said the investigation originated in an examination of American Express banks, partly in response to consumer complaints.
Some complaints related to the Blue Sky card that AmEx offered in exchange for a $300 payment that some consumers never got, Pearce said. The CFPB started work in July 2011 and the agency and other regulators uncovered more violations.
“We have been troubled by the range of problems we discovered,” Markus said.
The banks charged late fees to some customers based on a percentage of the debt owed, violating a ban in the Credit Card Accountability, Responsibility and Disclosure Act of 2009, according to legal documents.
Some applicants for cards over the age of 35 may have faced discrimination because the bank didn’t fully implement its credit-scoring system.
American Express also deceived some customers into believing there were benefits to paying off old debts, regulators said. Consumers were wrongly told paying them off would improve their credit scores, and the companies weren’t reporting the information to credit-reporting firms.
The Fed, FDIC and OCC also pursued coordinated actions against the company’s banking operations, including American Express Centurion Bank, American Express Bank FSB and American Express Travel Related Services.
The company agreed to improve its compliance systems, which “failed to adequately identify, monitor, and control risks associated with the services provided,” according to the Fed’s order. American Express has 90 days to submit a plan to the Fed for enhancing firm-wide compliance in addition to the central bank’s $9 million penalty.
Under the OCC settlement, American Express will pay $6 million in restitution to about 17,000 customers of the federal savings bank for the company’s failure to manage vendors involved in deceptive practices. The regulator also ordered the bank to fix its oversight of vendors.
American Express shares rose $1.14 to $58 at 2:25 p.m. The stock has climbed 23 percent this year.