American Express, the multinational financial services firm headquartered in New York City, has a history of illegal credit card practices. Yet, the credit bureaus tasked to monitor its activities have been quick on their feet to investigate and have fined the company heavily afterwards. Only recently, the Consumer Financial Protection Bureau (CFPB) ordered the company to pay more than $75 million in order to settle the accusation that it misled its customers with improper fees and penalties. The customers who will be given refunds total to more than 335,000 individuals.
One such controversial product the company has offered to the public is the so-called “Account Protector,” which was promoted as a form of insurance that, in case customers lost their jobs or suffered disabilities, would wipe out their minimum monthly payment. However, in reality, as the investigations found out, if these unfortunate events did occur to a customer, the payment is limited to 2.5 percent of the outstanding balance. The amount to be cancelled in most instances is less than the minimum payment due.
The other product the company initiated is the “Lost Wallet,” intended solely for its Puerto Rican customers as an aid in cancelling or replacing lost or stolen credit cards. However, the problems started when this product was not properly communicated in Spanish; and, as a result, customers were not able to properly understand the details and take advantage of its features. According to the CFPB, “In some cases, consumers paid for these services for several years without receiving all of the promised benefits.”
American Express, through a statement released Tuesday, said that it has already paid what is due to its customers and to the government and has stopped promoting the questioned products. It also said that internal reviews will be regularly conducted in order to identify issues and to prevent similar instances from happening again.
In 2012, as part of the investigation conducted by the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions, some illegal activities of the company’s subsidiaries, like the American Express Centurion Bank, American Express Travel Related Services Company, Inc. and the American Express Bank, FSB were exposed.
According to the results of the investigations, the violations occurred between 2003 and 2012; and they happened in every stage of the customers’ engagement with the company, from applying for cards, to settling charges, to paying off debts. Among the laws the company violated are laws prohibiting deceptive practices, such as the Credit CARD Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act.
Among the violations of the company were promises to customers through the “Blue Sky” credit program that they would receive $300 in addition to the bonus points if they enrolled in the American Express Centurion Bank program. Yet, customers who did meet the qualifications never received the $300 promised.
Another violation discovered was with regard to American Express Centurion Bank’s credit scoring system, which treated card applicants differently using age as the basis. The problem became apparent when the bank did not fully implement the program for applicants with ages above 35 years old. The program thus violated the Equal Credit Opportunity Act.
The same American Express subsidiaries failed to provide reports to credit bureaus on the existence of some customer disputes, which violates the Fair Credit Reporting Act. Another violation was with regard to misleading the customers about some benefits of paying off old debts. The benefits as communicated to the customers included: improving one’s credit scores and a waiving of a portion of their debt if the customers accepted the settlement being offered. However, the promise could not be delivered because the banks were not reporting the payments to the credit bureaus concerned, which is tantamount to misleading the customers about debt collection.
As a result of these various violations, the company was forced to release an estimated $85 million as full repayment to its 250,000 customers who were affected by the violations. The company likewise promised not to deceive customers with false promotions and illegal late fees. It also vowed to give full report to the credit bureaus and to not discriminate based on the age of the credit card applicant.
With the American Express history of illegal credit card practices now exposed by the credit bureaus, the company must learn from its mistakes. And, most importantly, it must assure the public that this will not happen again; otherwise, the trust and confidence bestowed upon it by its customers will be hard to recover in this very volatile business environment.
By Roberto I. Belda