After a slow start, the Consumer Financial Protection Bureau (CFPB) is beginning to live up to consumer advocates' hopes and Wall Street's fears. On Monday, the new federal regulator announced a steep penalty and fine against American Express for ripping off their customers. Three subsidiaries of the credit-card company will have to refund $85 million to around 250,000 customers. As a result of the investigation—conducted by the CFPB, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), and the Utah Department of Financial Institutions—American Express was fined an additional $27.5 million that will be divvied up between the various regulators' coffers.
Investigators found that American Express deceived customers at a number of steps, starting from the initial sale of a credit card. Customers were told they would receive extra points, totaling $300, by signing up for a "Blue Sky" credit card, but the bonus never materialized. At other times, American Express discriminated against certain prospective customers based on age, only employing a credit scoring system that took age into account for certain applicants, a violation of the Equal Opportunity Credit Act.
American Express also pushed customers to pay off old credit-card debt, promising that those payments would be reported to credit-rating agencies to improve folks' credit reports. According to the CFPB, that was a lie—American Express did not relay the information to credit bureaus, often because the debt was so old it wouldn't have changed credit scores.
The $85 million represents a full refund to consumers for the wrongful practices. Under the agreement reached between American Express and the regulators, the credit-card company and its subsidiaries must end these illegal practices.
"We're 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," said Kent Markus, the CFPB's assistant director of enforcement, during a conference call with reporters this morning. "This action is intended as a message to all entities that provide consumer financial products or services that there are consequences to violating the law."
The CFPB has been staunchly opposed by Republicans as well as big business, but it's winning friends in the public at large. So far, credit-card companies have been ordered to pay refunds to nearly six million customers. The agency's first enforcement action came in July against Capital One, which they caught engaging in deceptive marketing practices. In addition to putting an end to those tactics, the CFPB forced Capital One to pay back $140 million to about two million customers. In a joint investigation with the FDIC, the CFPB leveled an even higher penalty on Discover last week. That company will need to repay $200 million to 3.5 million customers after they sold cards by implying that certain add-ons—such as identity theft protection or payment protections—were free extras, whereas they actually carried additional fees. Other times, Discover customers were automatically enrolled in the add-ons without their consent.
Customers will receive their refunds without needing to take any action. Unlike the class-action lawsuit model, where consumers must wade through paperwork and submit claims before receiving funds, the CFPB's settlements have put the burden on the credit-card companies to automatically refund their current customers' accounts, or send checks to former card-holders. Those harmed by American Express's illegal practices should receive their refund by next March.