By MAYA JACKSON RANDALL And ANDREW R. JOHNSON
WASHINGTON--American Express the credit-card giant with a reputation for affluent customers and customer service, agreed to pay $112.5 million to resolve charges from banking regulators that it engaged in illegal card practices.
The company charged unlawful late fees, misled consumers on debt collection issues and discriminated against new account applicants on the basis of age between 2003 and 2012, according to the Consumer Financial Protection Bureau and other federal regulators.
One set of violations involved American Express's Blue Sky card.
The card company will pay $85 million to about 250,000 consumers via a check or a credit in their accounts by March, the CFPB said Monday.
In addition to paying customers refunds, American Express is required to pay $27.5 million in penalties: a $14.1 million fine to the CFPB, $3.9 million to the FDIC, $9 million to the Federal Reserve and $500,000 to the Office of the Comptroller of the Currency.
American Express neither admitted nor denied wrongdoing as a part of the settlement.
The latest case, which follows U.S. settlements with Capital One Financial Corp. and Discover Financial Services, tarnishes a company that has long touted its customer-service features. American Express consistently ranked at the top of consumer surveys, including No. 1 on J.D. Power and Associates' annual customer-satisfaction survey for credit cards for six years running.
In one violation alleged by regulators, some customers who met the qualifications for receiving $300 and bonus points for signing up for the American Express Blue Sky card never received the rewards. The offer was intended to advertise the fact that 22,500 bonus points was equal to $300 in value, a company spokesman said.
High ratings and customer service "still doesn't make an institution immune to allegations of compliance violations," said Stacie McGinn, a partner with the law firm Simpson Thacher & Bartlett LLP who represents banks on regulatory issues.
Julie Conroy McNelley, a research director with financial-services research firm Aite Group LLC, said the case is "certainly a bit of a blemish" on the American Express brand but is unlikely to have a lasting effect on the business
Company spokesman Mike O'Neill declined to say how the enforcement action may affect the company's reputation but said its "focus is on delivering the best customer experience for all." The firm had disclosed in an annual report filed with the Securities and Exchange Commission in February that regulators were investigating its late-fee and other practices.
The settlement doesn't address the sale of add-on products, an area American Express is cooperating on with regulators, Mr. O'Neill said. The CFPB's earlier actions against Discover and Capital One focused specifically on the sale of such products, including payment protection and identity-theft protection.
American Express earlier this year stopped selling certain add-on products, Mr. O'Neill said.
The investigation began when the Federal Deposit Insurance Corporation and the Utah Department of Financial Institutions discovered illegal activities during a routine examination of a unit of the company, American Express Centurion Bank. Officials transferred parts of the probe to the CFPB, which pursued the matter with other regulators.
In the end, regulators found consumer-protection law violations "at every stage of the consumer experience," including at the marketing level, enrollment stage, at the point of payment and during debt collection, the CFPB said.
In addition to the violations related to the Blue Sky card, regulators said the company charged late fees in a way that violated credit-card laws, and that the lender failed to report consumer disputes to consumer-reporting agencies, an alleged violation of the Fair Credit Reporting Act.
Letters that American Express sent to customers who agreed to settle a portion of outstanding debt were misleading because they stated such debt would be waived or forgiven, the regulators said. The letters didn't say that customers needed to repay their total outstanding debt before the bank would process a future application for a credit or charge card, they said.
The CFPB, created in 2010 to oversee credit cards, mortgages and other products, announced its first case in July, when Capital One agreed to pay a $210 million to address its sales of credit-protection products. The agency's second case came last month against Discover which was ordered to pay $214 million.
Under the three settlements, more than 5 million customers are set to receive refunds from the credit card firms.
Corrections & Amplifications
An earlier version misstated the number of customers who will receive payments as about 25,000. The correct number is about 250,000.
Write to Maya Jackson Randall at Maya.Jackson- Email address removed
A version of this article appeared October 2, 2012, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: AmEx Set to Pay Over Card Claims.