On October 2, the Consumer Financial Protection Bureau announced a settlement in which American Express (NYSE:AXP) will issue refunds totaling $85 million to about 250,000 customers. The settlement stems from a series of, "laws [that] were violated at all stages of the game," according to CFPB director Richard Cordray.
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In a routine examination of Centurion Bank, an American Express bank subsidiary, the FDIC and the Utah banking agency found a series of irregularities. This prompted an investigation that later involved the CFPB, the Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of the Currency. In addition to refunds to customers, American Express will pay these agencies $27.5 million.
SEE: Get To Know Your Consumer Financial Protection Bureau
What They Found
The investigation revealed that American Express used a credit scoring system that discriminated against people based on age, failed to report customer disputes related to billing to credit reporting agencies and engaged in a series of unlawful marketing and collecting practices.
Government officials said that telemarketers told customers they would receive $300 if they enrolled in the "Blue Sky" credit card program offered through American Express Centurion Bank, but customers were not sent the money. In 2010, the banking arms of American Express also charged late fees that were higher than the lawful limits.
Finally, in an attempt to collect outstanding debts, American Express told customers that they could improve their credit scores by paying off old debt, sometimes older than seven years. American Express did not tell customers that debt older than seven years has no effect on credit scores. Furthermore, they did not inform cardholders who did pay off past debt that it was not reported to credit bureaus.
Because of the recent government action, American Express announced plans to hire additional personnel to strengthen its compliance processes and work more closely with federal regulators.
SEE: Compliance: The Price Companies Pay
On October 31, American Express submitted a 10-Q filing, stating that it may face additional refunds and penalties related to some of its add-on products, such as debt suspension and credit monitoring. These products are the subject of further investigation by the CFPB and FDIC over potentially misleading marketing practices. Because of the investigation, American Express announced that it will stop marketing some of its add-on products.
American Express is not the only credit card company under investigation by the CFPB. Capital One (NYSE:COF) and Discover Financial Services (NYSE:DFS) have been the targets of law enforcement action for a series of similar violations.
How to Avoid Being a Victim
The violations listed in the settlement are varied but as a consumer you can lower your chances of being a victim of violations like these by following a few rules.
1. Just Say No
If a telemarketer from a credit card company tries to sell you add-on services such as luggage protection or insurance, ask them to send details to you or direct you to a website that explains the program. Read all the fine print and if you are still interested, call back and enroll. In many cases, these services are unnecessary.
2. Examine Your Statement
In a world in which consumers are flooded with e-mail, it is easy to get a statement but not examine each transaction carefully to look for errors. Carefully examine any fees charged by your card company and question any that you do not understand.
3. Know Your Rights
If you owe money to a company, you should pay it, but the law affords you certain rights when it comes to collection efforts. The statute of limitations varies by state, but credit card companies have between three and 10 years to file suit against you for non-payment. Anything on your credit report only affects your score for seven years.
4. Keep It Simple
Credit card users often find themselves in over their heads when they allow their balances to grow. Conflicts over interest rates, fees, penalties and other services become moot when you pay the balance off at the end of every month.
SEE: Financial Fraud: Don't Let It Happen To You
The Bottom Line
American Express and other credit card companies are under the scrutiny of government agencies such as the CFPB, but in the end, it is your job as a consumer to monitor your credit card statements carefully to avoid errors or potential unlawful practices.
At the time of writing, Tim Parker did not own any shares in any company mentioned in this article.
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