The Consumer Financial Protection Bureau is a highly effective regulator.
It has obviously been spending some significant time investigating credit
card companies. On the heels of the Capital One and Discover settlements,
the CFPB has just announced a third settlement.
American Express is the latest credit card issuer to witness the CFPB's
regulatory might. While the settlement is smaller than the previous two,
it is significant because it demonstrates just how problematic the credit
card industry has become. The Capital One and Discover settlements involved
misleading statements about add-on products. The AmEx settlement involves
In addition to making misleading statements about its products, AmEx also
discriminated against consumers based on their age, failed to properly
report consumer disputes to the credit reporting bureaus, and lied to
customers when attempting to collect old debts. For example, when enticing
customers to sign up for its "Blue Sky" program, AmEx would
promise points and a gift of $300. The $300 was never paid out in many cases.
The age discrimination allegations stem from a flawed credit scoring system
used by AmEx. For a period of time, the scoring system did not work for
applicants over the age of 35. This is a violation of the Equal Credit
Opportunity Act, which requires that these types of systems are properly
designed and implemented.
Perhaps most disturbing are the other violations alleged by the CFPB. In
violation of the Fair Credit Reporting Act, AmEx failed to report consumer
disputes to the credit reporting bureaus. By failing to report these disputed
accounts, AmEx was jeopardizing the accuracy of those consumers' credit reports.
AmEx was also lying to customers when collecting old debts. Bank representatives
would tell customers that there were specific benefits to paying off old
debts, including that the payment would be reported to the credit bureaus,
improving the customer's score. In reality, AmEx was not reporting
the payments. Even if AmEx
had reported the payments, many of them would have never appeared on a credit
report because the underlying debt was too old. The company was also inducing
customers to enter into settlement agreements with the promise of forgiving
debts -- the debts were never waived or forgiven.
American Express has agreed to pay back $85 million to its customers. It
is also paying an additional $27.5 million in civil fines. As with the
Capital One and Discover settlements, customers don't need to do anything
to receive their money. American Express is responsible for notifying
You can read more about the settlement