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The CFPB Pulls A Hat Trick, Announces Third Credit Card Settlement


The Consumer Financial Protection Bureau is a highly effective regulator. It has obviously been spending some significant time investigating credit card companies. On the heels of the Capital One and Discover settlements, the CFPB has just announced a third settlement.

American Express is the latest credit card issuer to witness the CFPB's regulatory might. While the settlement is smaller than the previous two, it is significant because it demonstrates just how problematic the credit card industry has become. The Capital One and Discover settlements involved misleading statements about add-on products. The AmEx settlement involves different misconduct.

In addition to making misleading statements about its products, AmEx also discriminated against consumers based on their age, failed to properly report consumer disputes to the credit reporting bureaus, and lied to customers when attempting to collect old debts. For example, when enticing customers to sign up for its "Blue Sky" program, AmEx would promise points and a gift of $300. The $300 was never paid out in many cases.

The age discrimination allegations stem from a flawed credit scoring system used by AmEx. For a period of time, the scoring system did not work for applicants over the age of 35. This is a violation of the Equal Credit Opportunity Act, which requires that these types of systems are properly designed and implemented.

Perhaps most disturbing are the other violations alleged by the CFPB. In violation of the Fair Credit Reporting Act, AmEx failed to report consumer disputes to the credit reporting bureaus. By failing to report these disputed accounts, AmEx was jeopardizing the accuracy of those consumers' credit reports.

AmEx was also lying to customers when collecting old debts. Bank representatives would tell customers that there were specific benefits to paying off old debts, including that the payment would be reported to the credit bureaus, improving the customer's score. In reality, AmEx was not reporting the payments. Even if AmEx had reported the payments, many of them would have never appeared on a credit report because the underlying debt was too old. The company was also inducing customers to enter into settlement agreements with the promise of forgiving debts -- the debts were never waived or forgiven.

American Express has agreed to pay back $85 million to its customers. It is also paying an additional $27.5 million in civil fines. As with the Capital One and Discover settlements, customers don't need to do anything to receive their money. American Express is responsible for notifying affected consumers.

You can read more about the settlement here.