With an average refund of $177, the 335,000 American Express cardholders who will be receiving restitution can celebrate the newest action of the Consumer Financial Protection Bureau (CFPB).
Rather than getting mired in an expensive legal process, American Express agreed to reimburse just over 335,000 of its cardholders for what the CFPB labeled as deceptive marketing tactics. The agency will pay a fine of $9.6 million to CFPB to settle the civil penalties that were levied by the agency. At issue were the marketing tactics of add-on products that CFPB claims unfairly led to increased overdrafts and unfair billing practices.
Benefits of Payment Protection Products
Normal payment protection products allow a cardholder to skip monthly payments if a qualifying hardship event was experienced. A job loss could theoretically allow a cardholder to miss a few payments without having to experience late fees and damaged credit. Of course, the interest would continue to accrue on the account, bringing the balance ever closer to the credit limit.
Many American Express cardholders believed that the Account Protector coverage worked the same way. However, rather than suspend their payment, it merely adjusted it to 2.5% of the account balance (up to $500). A payment of 2.5% of the balance is comparable to the payment that a cardholder would have to pay other card issuers without the payment protection.
Time limits were also confusing. Most qualifying events that would trigger the “protection” would only allow for 1-3 months. Only 2 of the qualifying events would allow for the benefits to be received for up to 24 months. In reality, the benefits were virtually nonexistent, yet the cardholders were often led to believe that there would be more of a benefit than there actually was.
Additionally, the cost was misunderstood by cardholders. While believing that no charge would be incurred as long as they paid their balance off each month, American Express would still apply a charge if the balance was not paid off in full prior to the end of the billing cycle. Normally the cardholder has until the actual due date.
Puerto Rican cardholders may have been adversely affected at a higher rate due to a problem with the telemarketing scripts used. Uniform scripts written in Spanish were not provided to all telemarketers, making it unlikely that all cardholders would have been properly notified of all of the stipulations of the coverage. For customers in Puerto Rico, the action centers around the marketing of the Lost Wallet product.
The CFPB claims that customers were mislead about the enrollment steps necessary to obtain the coverage, noting that many failed to complete the second step necessary to activate the coverage. Only 15% of those who paid the full fee were able to receive all of the advertised benefits.
Finally, the CFPB reported that cardholders were lured by the appeal of a free credit report. While this is not illegal, the law does state that the customer must also be told about their right to obtain a free credit report through AnnualCreditReport.com even if they do not buy the coverage.
If you believe you were affected by the American Express restitution settlement, then you may contact American Express to inquire about your refund. The telephone number on your statement or the back of your card will allow you to find out about whether you were included. American Express will be notifying cardholders of the settlement automatically, so no action is necessary.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."