Federal regulators hit American Express with $112.5 million in penalties

The Consumer Financial Protection Bureau (CFPB) is continuing to dole out penalties for bad behavior by credit card companies, joining other regulators in slamming American Express with a $112.5 million penalty.

The bureau charged the company engaged in bad behavior dating back nine years, including deceiving consumers signing up for cards, charging illegal late fees and discriminating against younger card applicants. Now, the company has agreed to pay back $85 million to 250,000 cardholders and another $27.5 million to the government as a penalty.

"Several 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," said CFPB Director Richard Cordray.

The settlement stemmed from a joint investigation conducted by the CFPB, the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions. The illegal activities first became apparent after a routine examination by the latter two regulators of an American Express subsidiary.

The CFPB said the credit card company violated consumer protection laws "at every stage of the consumer experience." For example, the company deceived consumers by not giving them a $300 bonus promised with new cards. It also used a credit scoring system that treated card applicants differently based on age, and failed to fully implement it for applicants under the age of 35 for a period of time.

The CFPB also charged that American Express subsidiaries told borrowers that if they paid off their old card debts, the company would report it to credit bureaus and it would improve their credit scores. In reality, debt repayments were not reported to the bureaus, and in some cases the debts were so old they would not have affected borrowers' credit scores anyway.

In response to the charges, American Express has agreed to fully pay back all customers affected by the illegal behavior, many being fully reimbursed with interest. It also promised to inform borrowers if a debt is too old to affect their credit score, and submit to an independent compliance audit.

The $27.5 million penalty paid to the government is the sum total of several levied by regulators. The CFPB, FDIC, Federal Reserve, and the Office of the Comptroller of the Currency (OCC) all joined in assessing the fines.

American Express said in a statement posted online it was cooperating fully with the regulators, and planned to notify impacted consumers as soon as possible.

This latest penalty marks the latest in a run of enforcement actions the CFPB, along with other regulators, has launched against credit card companies.

Last month, the bureau and FDIC announced a $214 million penalty for Discover Bank for employing deceptive telemarketing and sales tactics when selling credit cards. And in July, the CFPB assessed $165 million against Capital One for deceptive marketing practices. That penalty stemmed from a joint enforcement action by the bureau and the OCC.

This post updated at 12:18 pm.