As you have heard, today’s CFPB enforcement actions involve violations at three American Express entities and will return an estimated $85 million to approximately 250,000 consumers. This action resulted from collaboration with our fellow banking regulators and relied on our united goal of ensuring that every consumer is treated fairly under the law.
From the moment we learned of the wrongdoing at American Express, we have been troubled by the range of problems that our examination process uncovered. The legal violations we discovered spanned the lifecycle of the consumer’s experience with American Express cards.
However, we were pleased that when we brought these violations to the attention of the American Express-related companies they were fully cooperative in their efforts to develop and establish appropriate remediation for consumers. We worked collaboratively to craft the remediation plans not only to remedy past actions, but also to establish a compliance system to prevent these violations from occurring in the future. Some of the remedies we have ordered today require American Express to take certain actions to remedy past legal violations and to make sure they do not happen in the future. Some involve returning money – approximately $85 million total – to wronged consumers. They address five distinct violations of law that we found at American Express.
First. For six months during 2010-2011, one American Express company sent offers for its Blue Sky credit card to some consumers misleading them to believe that they would receive $300 in addition to bonus points if they met the terms of the offer. We have ordered American Express to correct its misleading marketing materials and to pay all harmed consumers the $300 they reasonably expected to receive by accepting the original offer, plus interest.
Second. Card issuers determine eligibility before giving a consumer a credit or charge card, but if a card issuer is going to use age in its decision it must follow the requirements of anti-discrimination laws. For a period of time in 2010, American Express Centurion Bank treated card applicants differently based on age but did not appropriately design and implement its scoring system for applicants over the age of 35. American Express will be required to certify that all qualified consumers who suffered unlawful age discrimination were given an opportunity to reapply for credit. Going forward, we have ordered American Express to comply with anti-discrimination laws.
Third. In 2010 and 2011, two American Express companies charged certain consumers higher late fees than they were legally permitted to charge. American Express will refund every impermissibly charged late fee, plus interest, to the harmed consumers. Going forward, we have ordered American Express to only charge late fees as allowed under the law.
Fourth. Consumers have the right to dispute information a creditor reports to a credit bureau, and to have their disputes noted on their credit reports. When consumers disputed credit report information to two American Express companies, however, American Express did not report the consumers’ disputes to the credit bureaus. This failure violates the law. We have ordered American Express to change this system so every consumer’s dispute is reported accurately and on time.
Finally, three American Express companies used deceptive practices to collect outstanding debt: American Express wrongly told some consumers that if they paid off old debt, the payment would be reported to credit bureaus and could improve their credit scores. In fact, American Express was not reporting the payments and the debts were so old that even if they had tried to report them, the payments may not have appeared on these consumers’ credit reports or affected their credit scores. We have ordered American Express to give back the money it collected using this deceptive practice, plus interest.
American Express also told some consumers that a portion of their debt would be waived or forgiven if they accepted certain settlement offers. But American Express was not really forgiving or waiving any portion of the debt if the consumer applied for a new card with American Express. We have ordered American Express to abide by its promise and consider this debt forgiven should any of these consumers apply for new cards in the future. For consumers who accepted the settlement offer and were then denied a new card because of the outstanding balance, American Express will compensate them with $100 and a pre-approved offer for a new card with favorable terms. Consumers who settled and then paid the remaining balance in order to get a new card will be refunded that money, plus interest.
To safeguard American Express consumers, we have required the three American Express entities to reform their debt collection practices. American Express must inform consumers when the debt they are seeking to collect is too old to be reported by a consumer reporting agency and that payment or non-payment will not affect their credit score. And when collecting on debt that is too old to be sued over due to applicable statutes of limitation, American Express will continue to tell consumers that it cannot sue to collect on the debt. Further, American Express will not collect debt unless it has documentation evidencing the debt. Going forward, this must include, at a minimum, the complete terms and conditions of the account and a complete transactional history of the debt. American Express will provide this information upon request to consumers.
Consumers are not required to take any action to receive their money. Consumers who are still American Express customers will receive a credit on their American Express account. If they no longer hold an American Express card, they will get a credit towards any outstanding balance or will receive a check by mail. American Express will work collaboratively with its regulators, and expects that payments to consumers will be made by March of next year.
In order to make it less profitable to violate the law than to follow it, the CFPB has fined the American Express companies over $14 million in civil money penalties, and American Express companies will be fined an additional $13.4 million penalty by the other regulators. The CFPB did not impose this penalty lightly. The Dodd-Frank Act provides a framework for calculating civil money penalties, and takes into consideration a number of factors including the size of financial resources and good faith of the bank, the gravity of the violation, the severity of the loss to consumers, any history of previous violations, and other matters as justice requires. In assessing the penalties against American Express, we carefully considered these factors, especially the pervasiveness of the violations and the magnitude of the harm to consumers.
Compliance with the terms of these agreements will be assured through the work of independent auditors, and the American Express companies will prepare and submit compliance reports to the Agencies with respect to other aspects of the agreements.
The Consent Orders ensure that these American Express companies will return approximately $85 million to almost 250,000 consumers it has harmed. And equally important, we have taken steps to ensure that, going forward, American Express will treat consumers fairly and will follow the law.
This action represents a coordinated effort by the Bureau’s Supervision, Enforcement and Fair Lending Division. Through this and other actions, the CFPB provides accountability and oversight of the consumer credit market. We are serious about enforcing the law so that consumers and businesses that play by the rules get a fair shake. We want to make it more expensive to break the law than to abide by it, imposing consequences for legal violations and creating a level playing field.
This action is a message to all entities that provide consumer financial products or services – that there are consequences for violating the law.
Before concluding, I want to commend the American Express companies for their cooperation in resolving this matter. They worked with us to resolve the legal violations and provide compensation for harmed consumers.
The Office of Enforcement is committed to holding entities accountable and helping build a consumer credit structure that works—works for families, works for responsible businesses, and works for the American economy.