For the third time in as many months, the CFPB announced the resolution of an enforcement action against a major credit card provider. After reaching settlement with Capital One and Discover, the CFPB set its sights on American Express. Yesterday (10/1/12), the CFPB issued multiple consent orders requiring several American Express companies “to refund an estimated $85 million to approximately 250,000 customers for illegal card practices” and pay a $27.5 million penalty to be split among the CFPB, the FDIC, the Federal Reserve and the OCC. CFPB Director Cordray remarked that the Bureau found that “[s]everal American Express companies violated consumer protection laws and those laws were violated at all stages of the game—from the moment a consumer shopped for a card to the moment the consumer got a phone call about long overdue debt.”

According to the CFPB, its joint investigation with the FDIC, Federal Reserve, OCC and Utah Department of Financial Institutions “found that the violations occurred at various points in time between 2003 and spring 2012” and, “occurred at every stage of the consumer experience, from shopping for cards, to applying for cards, to paying charges, and to paying off debt.” Specifically, the CFPB claims that the American Express companies:

  • Deceived American Express “Blue Sky” credit card consumers regarding a cash bonus for signing up for this American Express Centurion Bank program.
  • Charged late fees in violation of the Credit CARD Act.
  • Discriminated against new account applicants on the basis of age in violation of the Equal Credit Opportunity Act.
  • Failed to report consumer disputes to consumer reporting agencies in violation of the Fair Credit Reporting Act.
  • Misled consumers about debt collection.

In addition to the financial penalties, the American Express companies agreed to:

  • End the alleged illegal practices.
  • Establish convenient repayment plans for consumers.
  • Inform consumers of debt collection rights.

Implement new procedures to ensure compliance with consumer financial protection laws and retain independent auditors to ensure compliance with the consent order.

American Express reported that it “cooperated fully with the FDIC, CFPB, FRB, OCC, and UDFI” and “is strengthening its internal compliance processes and will continue to work closely with its regulators.”

The CFPB made no qualms about the fact that 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." Kent Markus, the CFPB's assistant director of enforcement, warned that the CFPB “is 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."

As it continues to flex its untethered regulatory muscles, the CFPB has not only put all financial institutions on notice that it intends to scrutinize their practices and procedures, but also that it will continue to share resources and information with state regulators and law enforcement agencies, and vice versa. Here, the purported violations were initially discovered by the Utah Department of Financial Institutions. Paul Allred, deputy commissioner of the Utah department, said his department declined to impose penalties against American Express because the civil fines and orders of restitution were sufficient.

Stay tuned to the CFPB-Lawblog for updates, as we’ll continue to monitor enforcement actions in the credit card arena.