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The Globe and Mail

American Express pays $113-million to settle consumer probe

American Express is paying $113-million (U.S.) in refunds and fines to settle regulators’ accusations that it charged illegal late fees and deceived customers.

Wilfredo Lee/AP

American Express has agreed to pay about $113-million (U.S.) to settle U.S. government accusations that it violated numerous consumer protection laws "at every stage of the consumer experience."

The bank, the 19th-largest in the U.S. with $147-billion in assets, allegedly deceived consumers into thinking they would receive money for signing up for some of its credit cards, charged illegal late fees, discriminated on the basis of age, failed to report consumer disputes to credit bureaus and misled borrowers into paying off old debts.

"From the moment we learned of the wrongdoing at American Express we have been troubled by the range of problems our examinations team uncovered. The legal violations we discovered spanned the life cycle of the consumer's experience," said Kent Markus, assistant director of enforcement at the Consumer Financial Protection Bureau.

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Amex did not admit nor deny the allegations. It said it had established reserves for a "substantial portion" of the settlement payment and is strengthening its internal compliance program. Amex had previously disclosed the existence of the investigation in filings with the Securities and Exchange Commission.

Amex typically markets its cards to wealthier borrowers. It has been top of a JD Power and Associates survey for customer satisfaction for six consecutive years.

Amex will refund about $85-million to an estimated 250,000 aggrieved consumers. The rest of the money will be split among the five government agencies involved in the investigation, including the CFPB.

"We want to make it more expensive to break the law than to abide by it," Mr. Markus said.

The investigation began following a routine examination by bank regulators, officials said. It discovered that the alleged violations began in 2003.

Officials found that the bank's Centurion subsidiary had an ineffective compliance regime and inadequate staffing. Regulators noted frequent turnover in the subsidiary's chief compliance officer position.

The agencies also alleged that Amex told customers that if they settled old unpaid debt they could improve their credit score, which is used by lenders to price various forms of credit. However, Amex did not report the payments to credit bureaus, the government said. In some cases the debt was so old it was no longer on borrowers' credit reports.

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The settlement is the CFPB's fourth enforcement action since being established in 2010 by the Dodd-Frank financial regulation law. Three of the four have been directed at credit card companies, a signal that the agency is focusing on card practices.

In July the CFPB was among a group of regulators that reached a $210-million settlement with Capital One for alleged misselling of products for its credit cards. Last month, the agency was part of a probe that resulted in a $214-million settlement with Discover over similar marketing practices.

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