In another demonstration of aggressive enforcement, the Consumer Financial Protection Bureau on October 1, 2012, announced that it had settled its enforcement actions against various American Express entities alleging a wide range of compliance violations. The settlement requires American Express Bank, FSB (AEBFSB) and American Express Centurion Bank (AECB) to make restitution payments totaling $85 million. In addition, the banks, their holding company, and its parent company are required to pay a total of $27.5 million in civil monetary penalties to the CFPB, the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation.

The enforcement actions originated with the FDIC's routine examination of AECB in 2011 conducted jointly with AECB's state regulator. The FDIC then shared the examination results with the CFPB, which conducted a targeted examination of AEBFSB. In these examinations, the FDIC and CFPB looked at practices going back to 2003. Based on their findings, the CFPB and FDIC charged the American Express entities with the violations outlined below.

  • Violation of the Dodd-Frank Act prohibition of unfair, deceptive, or abusive acts or practices as a result of (1) credit card solicitations by AECB that led consumers to believe they would receive $300 in addition to bonus points by signing up for the card, and (2) debt solicitations by both banks and their holding company that led consumers who agreed to settle old debt to believe that (a) the settlement would be reflected on their credit reports and improve their credit score, and (b) their remaining debt would be waived or forgiven. According to the CFPB and FDIC, these debt collection practices were misleading because the settled debts were not reported to consumer reporting agencies and may have been too old to appear on a credit report, and there was no prominent disclosure to consumers who applied for a new card that their remaining debt needed to be repaid before an application would be processed.
  • Violation of the Equal Credit Opportunity Act requirement for a credit scoring system to be properly designed and implemented as a result of AECB's failure to fully implement for applicants over age 35 a system that treated applicants differently based on age.
  • Violation of the Truth in Lending Act limitations on credit card late charges as a result of both banks imposing a late charge equal to 2.99 percent of the customer's balance.
  • Violation of the Fair Credit Reporting Act as a result of the failure of both banks to report consumer disputes to consumer reporting agencies.

The consent orders entered by the CFPB and FDIC include the following relief:

  • Consumers who were charged late fees greater than $35 will receive a refund of the excess amount, plus interest. 
  • Consumers who settled their accounts and were denied a new credit card will receive $100 and a pre-approved offer for a new card on terms approved by the CFPB and FDIC. In addition, the banks are prohibited from denying future applications because the consumer did not repay the entire balance. Customers who paid the "waived or forgiven" amount to receive a new card will be refunded that amount, plus interest.
  • Consumers who made payment on debts not reported to consumer reporting agencies will be refunded the amount they paid, plus interest.
  • Consumers who opened a credit card account after receiving a solicitation that indicated they would receive $300 for doing so will receive $300.
  • Consumers over the age of 35 who would have been approved for credit under the scoring system that was not fully implemented must be invited to reapply.

The consent orders also require the banks to hire independent auditors and conduct annual audits of their compliance with consumer protection laws. In addition to the restitution and penalties assessed in those consent orders, separate orders assessing civil monetary penalties were entered by the CFPB (against  the banks' holding company), the OCC (against AEBFSB), and the Fed (against the banks' holding company and its parent company).

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance. The group also produces the CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe, use the link provided to the right.

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or, Practice Leader Jeremy T. Rosenblum at 215.864.8505 or, John L. Culhane, Jr., at 215.864.8535 or, Christopher J. Willis at 678.420.9436 or, or Mark J. Furletti at 215.864.8138 or

Copyright © 2012 by Ballard Spahr LLP.
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