On Monday, the US regulators slammed
American Express Co.
) (AmEx) with charges worth $112.5 million as a result of a legal
settlement that found the company guilty of charging undue fines
for late payments on the cards since 2003.
The company has also been held for breaching its practices
related to billing, marketing and debt collection of its credit
cards. AmEx falsely assured the customers that their debt would be
completely scrapped once a partial debt was paid. However, the
consumers' debt on the AmEx credit cards continued to escalate and
the company further denied new cards to such customers.
Moreover, customers who registered for the company's "Blue Sky"
credit cards were promised $300 and additional bonus points,
although this money was never paid. AmEx also failed to comply with
the consumer-protection laws.
As a result of claims made by the consumers, a multi-agency
investigation was conducted by prime US regulators including the
Federal Reserve, the Consumer Financial Protection Bureau, the
Office of the Comptroller of the Currency and the Utah Department
of Financial Institutions. These regulators found AmEx guilty of
all the accusations charged by the consumers.
Accordingly, AmEx has accepted the allegations and agreed to
settle the lawsuit by paying back $85 million to 250,000 consumers
and the remaining $27.5 million as civil damages. The refund to
consumers is expected by March 2013.
The settlement also requires the company to make additional
modifications to its business policies that protect the consumer
rights. Additionally, AmEx will provide a pre-approved credit card
and $100 to the consumers who were previously denied debt dismissal
and issue of new cards.
The the US Consumer Protection Act enacted in 2010 has axed many
banks and credit card companies who were found guilty of practicing
faulty business policies, which in turn, failed to recognize the
consumers' interest and led them to a debt trap. Last week,
Discover Financial Services
) was charged with a consumer-protection settlement of $200 million
to over 3.5 million consumers along with $14 million as civil fines
In July this year,
) alsoentered into a formal agreement with the federal court of
Brooklyn to settle a multi-state US merchant lawsuit. About 7
million merchants or retailers had accused these card companies in
2005 of fixing prices and unduly increasing processing or
interchange fees on transactions made through debit and credit
Accordingly, Visa and MasterCard have agreed to pay about $6.6
billion to the retailers, of which Visa has incurred cash
settlement charge of $4.4 billion. Meanwhile, MasterCard recorded a
liability of $790 million against the litigation settlement.
While the new financial reforms are coming as a relief to
merchants and consumers in one way or the other, going ahead, these
regulations are liable to weigh on the margins of the card
AmEx currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating and long-term Neutral recommendation on the
AMER EXPRESS CO (AXP): Free Stock Analysis
DISCOVER FIN SV (DFS): Free Stock Analysis
MASTERCARD INC (MA): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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