American Express Co is paying US$112.5 million in refunds and fines to settle regulators’ accusations that it charged unlawful late fees and deceived customers to pressure them to pay off old debts or buy extra credit card services.
The company agreed to the settlements announced on Monday by four federal agencies, including the US Federal Reserve and the Consumer Financial Protection Bureau, and Utah regulators.
American Express is refunding US$85 million to about 250,000 customers and is paying US$27.5 million in civil fines.
The agencies said American Express violated federal laws prohibiting deceptive practices by using false statements to get customers to settle old debts. The regulators say those included falsely telling customers that if they agreed to settlements to partially pay off their debts, the remaining balance would be forgiven.
The violations were said to have occurred from 2003 to this past spring.
Director of the Consumer Financial Protection Bureau Richard Cordray said in a statement that the company violated consumer-protection laws “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.”
American Express also charged late fees on some credit cards based on a percentage of the debt owed, a violation of a 2009 law prohibiting certain credit card practices, the regulators said.
They said customers were sometimes led to believe they would get US$300 as well as bonus points if they signed up for Amex’s “Blue Sky” credit card program. Customers who met the conditions did not receive the promised US$300, according to the agencies.
In addition, they said the company unlawfully discriminated against consumers applying for new card accounts on the basis of age and failed to report customer disputes over billing to the consumer-credit reporting agencies.
New York-based American Express also agreed to end the practices and to hire independent auditors to ensure the company’s compliance with consumer-protection laws.
Amex said in a statement that it has put together plans to correct each of the violations cited by the regulators.
“The company is strengthening its internal compliance processes and will continue to work closely with its regulators,” the statement said.
Unlike Visa and MasterCard, which only process transactions, Amex issues its own credit cards. When customers charge more on their Amex cards, the company earns even more in interest income and a variety of fees. Amex calls itself the world’s largest credit card issuer by volume of customer purchases.