The Consumer Financial Protection Bureau hasn’t stopped its crusade against credit card issuers that manipulate and deceive its customers. Earlier this year, regulators ordered Capital One to pay $210 million in refunds and fines for tricking card holders into buying add-on products with the implication that these were required purchases for those with bad credit, taking advantage of people who may be less sophisticated or knowledgeable about the products.
The CFPB ruled just a few months ago that Discover® should pay $214 million in refunds and fines for similar sales tactics.
American Express was the next target.
In October, the CFPB announced American Express would be required to pay an $85 million refund to its customers and a $27.5 million penalty for violating the Credit CARD Act by charging late fees calculated as a percentage of the balance owed, failing to pay customers the $300 bonus they qualified for when signing up for an American Express Blue Sky promotion, lying to its customers about the benefits of paying off old debt, using age as a discriminating factor for new credit card applicants, and failing to report billing disputes to credit reporting agencies, a violation of the Fair Credit Reporting Act.
Here is how to know if you qualify for a refund from American Express.
- If you signed up for the Blue Sky credit card during the $300 bonus promotion and qualified but did not receive the bonus, you will receive a $300 credit.
- If you were charged and you paid an illegal late fee, the fee you paid will be reimbursed in full plus interest.
- If you paid off old debt in response to American Express’s promise that it would improve your credit, you will receive a refund for the full amount old debt you paid plus interest.
- Customers whose debt was supposedly forgiven but American Expressed counted that “forgiven” debt as a reason to deny new credit will receive $100 and a pre-approved offer for a new card. Regulators will approve the terms of the new card. If the customer paid off the supposedly forgiven debt in order to qualify for a new card, American Express will refund that repayment plus interest.
Customers due refunds will not need to take any actions in order to receive the money. American Express will automatically credit affected customers’ active accounts and send checks to ex-customers.
Under the CFPB civil process, American Express does not need to admit or deny these allegations. The company and its subsidiaries, through its Board of Directors, agrees to pay the refunds and the fines in order to avoid a drawn-out legal process. Compare this with the number of years it took Bank of America to reach a settlement in its various class-action lawsuits. In Bank of America’s cases, the refunds issued by the bank to its affected customers were only a small portion of the fees or other expenses those customers paid. The class-action attorneys are the winners with the Bank of America settlements.
With the CFPB enforcing these actions, affected customers will receive full refunds. The regulators are also requiring American Express to stop deceiving their customers.
It’s worth noting that the entire idea of profiting from credit card sign-up bonuses relies on the credit card issuers living up to their promises. Many sign-up cash bonuses require new card holders to reach a spending threshold within a certain time frame in order to qualify, but if the company refuses to pay when you do qualify, it’s false advertising. When you can’t trust a company to pay a bonus, you’re accepting risk for a reward that might not exist.
Consider how good the credit card offer is without the bonus before signing up if you plan to use the card for everyday spending. You have regulators on your side for ensuring the companies play by the rules.
This isn’t the end of deceptive practices in the credit card industry. When the public’s attention is focused in one place, like the Blue Sky bonus or illegal late fees, companies will look for other ways to replace the profit. They might find other ways to deceive customers, and will continue to do so until they are told by regulators to stop.
The story ends with good news. American Express, Capital One, and Discover® all intend on paying their refunds in the beginning months of 2013. That might help consumers still reeling from overspending for the holidays, but don’t count on having the refunds until they’re actually in your bank account. In fact, it would be better from a money management perspective not to count on the refunds at all.
As I’ve seen with the Bank of America refunds, those receiving checks in the mail are having problems cashing or depositing them.
- The checks don’t always fit in ATMs.
- Uneducated tellers don’t believe they are real checks because they look like postcards.
- Some customers discarded the postcards as junk mail without realizing they were checks they had been waiting for.
- And others find that in order to cash the checks, they have to pay a fee.
It hardly makes sense to pay a $5 fee to a bank or check cashing outfit to convert a $5.50 check to cash. You can be sure the lawyers involved with cases like these, who receive in total a large percentage of total settlement awards, cash their checks (or confirm their wires, most likely).
Updated June 24, 2016 and originally published December 17, 2012.