The Consumer Financial Protection Bureau (CFPB) and the Federal Deposit Insurance Corporation (FDIC) announced late Monday that they have reached a settlement with the chartered bank that issues credit cards marketed by American Express. Under the settlements, the company will provide refunds to some 250,000 consumers totaling $85 million and pay civil fines of $27 million.
The agreement with American Express Centurion Bank of Salt Lake City also involved the Federal Reserve and the Office of the Comptroller of the Currency (OCC).
Federal regulators alleged that American Express engaged in illegal practices surrounding its offers to consumers to settle old credit card debt.
Specifically, the CFPB and FDIC determined that the bank had misrepresented to consumers “that if they entered into an agreement to settle old debt (that was no longer being reported to consumer reporting agencies), such settlement would be reported to consumer reporting agencies and thereby improve the consumers’ credit scores.”
Furthermore, American Express is alleged to have used settlement solicitations “that implied that consumers who entered into settlement agreements to partially pay such debts would have the remaining balance of their debts forgiven, when in fact the balance remained a debt owed to American Express” when consumers applied for a new card.
The agencies also hit the card issuer with penalties for using marketing solicitations “that misrepresented the points and awards consumers would receive upon enrollment in one of American Express’ credit card products.”
The action marked the CFPB’s third $100+ million settlement with national credit card issuers in less than two months. Capital One was hit with a $140 million action in July and Discover’s $200 million settlement was announced last week.
Consumers who paid old debt in response to deceptive promises to report payment to credit bureaus will be reimbursed the money they paid plus interest. Also, consumers who were promised their debt would be forgiven but were denied new American Express cards because the debt was not really forgiven, will receive $100 and a pre-approved offer for a new card with terms that the regulators find acceptable.
In addition to restitution, the Consent Order requires the company to correct all violations, provide clearly written disclosures on debt collection statements, and stop using deceptive credit card solicitations. In addition, the Bank will improve its compliance management system and improve board oversight of affiliates and third-party service providers in order to adequately manage third-party risk.