American Express, Gov’t reach resolution to address ‘discrimination’ against Puerto Ricans
SAN JUAN – The Consumer Financial Protection Bureau (CFPB) on Wednesday took action against two American Express banking subsidiaries for discriminating against consumers in Puerto Rico, the U.S. Virgin Islands, and other U.S. territories by providing them with credit and charge card terms that were inferior to those available in the 50 states.
American Express also discriminated against certain consumers with Spanish-language preferences, the CFPB said. Over the course of at least 10 years, more than 200,000 consumers were “harmed” by American Express’ discriminatory practices, which included charging higher interest rates, imposing stricter credit cutoffs and providing less debt forgiveness.
“The products in the U.S. Territories were very competitive with local offerings, and they were always made available to qualified individuals without regard to race or ethnicity. However, by law, these products should not have varied from their Continental U.S. counterparts,” the company said in a statement.
American Express has paid approximately $95 million in consumer redress during the course of the CFPB and American Express’ review, but Wednesday’s order requires it to pay at least another $1 million to fully compensate harmed consumers.
Although the CFPB maintains that the differences between the cards the company issued in the U.S. territories and those it issued in the mainland U.S. before March 2013 amounted to discrimination, “American Express absolutely does not agree with this claim,” it says in its release.
The company faces no civil penalties because it self-reported the problem, did not intentionally discriminate against customers and the differences were a result of its management structure, which had different business units overseeing its Puerto Rico cards and U.S. cards. According to the bureau, these differences spanned the product lifecycle and included:
- Charging higher fees and interest rates and offering less advantageous promotional offers: One American Express bank charged Puerto Rico cardholders higher average interest rates and annual fees than similarly situated U.S. cardholders. American Express’ promotional offers (such as 0% introductory rates or waiving first year fees) for its Puerto Rico cards were also inferior. Similarly, for some residents of Puerto Rico and the U.S. territories who did get U.S. cards, including some small business cards, American Express gave less valuable promotional offers than those given to 50 U.S. states residents. These discriminatory pricing practices harmed over 200,000 cardholders.
- Imposing more stringent credit score cutoffs and lower credit limits: American Express applied stricter credit score requirements to its Puerto Rico cards than its comparable U.S. cards but did not apply more stringent credit score cutoffs to other U.S. geographies. As a result, American Express denied credit to certain Puerto Rico card applicants who would have been approved for comparable U.S. cards had they lived in the 50 U.S. states. American Express also imposed lower initial credit limits on certain Puerto Rico cards and thus provided less access to credit than to similarly situated U.S. cardholders. Additionally, one American Express bank outright denied Puerto Rican residents who applied for certain consumer and small business card products that were offered to U.S. residents. These discriminatory practices harmed over 35,000 consumers and small businesses.
- Requiring more money to settle debt: In using third-party debt collectors, one American Express bank settled card debt held by Puerto Rico cardholders on less favorable terms than debt held by its U.S. cardholders. On average, Puerto Rico cardholders had to pay 73 percent of the owed amount, compared with only 55 percent paid by U.S. cardholders. It also excluded certain Puerto Rico cardholders from letter campaigns with even more advantageous debt settlement offers through which U.S. cardholders were able to settle, on average, for 42 percent of the owed amount. American Express also did not provide certain collection offers and services that it gave to U.S. cardholders, including benefits for paying all or a part of their past due balance, to Puerto Rico cardholders and cardholders who requested Spanish language communication. These differential collection practices harmed over 53,000 cardholders in Puerto Rico and the U.S. territories, or who indicated a Spanish-language preference.
The company says it “decided to settle with [the CFPB] rather than go through years of litigation that would have provided no additional value to any of its customers.”
The full text of the CFPB’s consent order is available here: http://files.consumerfinance.gov/f/documents/201708_cfpb_american-express_content-order.pdf