American Express is facing legal action because it overcharged cardholders for late fees, the company said in a regulatory filing to the U.S. Securities and Exchange Commission. The Federal Deposit Insurance Corp. (FDIC) has announced it is looking into "formal enforcement action" against the company's bank, Centurion Bank. The Consumer Financial Protection Bureau and the Utah Department of Financial Institutions could also take action against the company, the filing revealed.
At issue is how American Express applied its late fee policy to its line of charge cards that include a lending feature which allows customers to carry a balance without accruing an interest charge. The company admitted it was using the late fee policy from its credit cards that do not have that lending feature, but instead require the cardholder to pay the card balance in full each month. This resulted in the lending-feature cardholders having late fees assessed when they had a balance due past their credit card statement date.
The company had been notified by regulators that its policies were the subject of investigation, and changed the late-fee policy for those cards to the one it applies to cardholders who have a traditional revolving credit card account. The CFPB hasn't announced plans to file against American Express, but is expected to do so.
American Express is expected to refund late fees erroneously charged to customers from an accrual that was established in the fourth quarter of 2010, but no timeline for repayment was announced. The company did not reveal how many customers had been affected by the late fee charges. Along with refunding customers, the company could face losses up to $510 million due to legal expenses, possible civil fines and payment for government examinations.