NEW YORK — American Express Co., the largest credit-card issuer by spending, is facing an enforcement action by the Federal Deposit Insurance Corp. and possibly the Consumer Financial Protection Bureau over late fees it charged some charge-card customers, the company said Friday in a regulatory filing.
The customers affected by the incorrect fees used charge cards that also allowed them to carry balances.
American Express offers both charge cards, which a customer must pay off in full each month, and revolving credit cards, which allow a customer to carry a balance month to month that incurs interest charges. It also offers a hybrid product that allows a customer to carry a balance on a charge card.
The FDIC and Utah Department of Financial Institutions have been reviewing the card practices of American Express's Centurion Bank, "including the way late fees are assessed on charge cards with a lending feature," the company said in its annual report filed with the U.S. Securities and Exchange Commission. The FDIC has provided information "it considered relevant" to the CFPB, the filing said.
The FDIC notified American Express this month of its plans to take "formal enforcement action" against Centurion Bank, "and it appears likely the CFPB" and Utah Department of Financial Institutions "will take some type of action against" the bank as well, the company said. Those actions could include civil fines, it said.
New rules regarding how much credit-card issuers can charge customers who are late on their bills took effect in August 2010 as part of the Credit Card Accountability, Responsibility and Disclosure Act of 2009. For revolving credit cards, the rules limited late fees to $25 for a first offense and up to $35 if a customer is late a second time within a six-month period. Late fees were limited to 3% of an amount due for charge-card products.
American Express was applying the late-fee structure for "pay-in-full" products to charge cards that include the lending feature, a spokesman for the company said Friday. The late fees were being applied to the balances that customers had scheduled to pay in full at the end of each month, the spokesman said.
The company changed the policy in December per feedback from regulators and now applies rules pertaining to revolving credit cards to those hybrid cards, the spokesman said. He declined to say how many customers were affected.
American Express has established an accrual for late fees it expects to refund to customers and made changes to "certain of its card practices," the filing said. The accrual was established in the fourth quarter, the spokesman said.
Additional changes that may be required as well as penalties could "adversely affect the company's operations and results," the filing said.
The company did not say how much the enforcement actions could cost. However, the filing said it is "reasonably possible" losses from legal proceedings and governmental examinations in excess of what it has already accrued for various matters could cost zero to $510 million.
American Express is the latest credit-card lender to face potential action by the CFPB. The agency, which was established by 2010's Dodd-Frank Act, is expected to file an enforcement action with the FDIC against Discover Financial Services over the company's marketing of fee-based products, Discover said in its annual report last month.
Specifically, Discover said the regulators were looking at a product that allows customers to defer their monthly payments in the event of a job loss, medical emergency or other event. The cost of the joint enforcement action could exceed $100 million, Discover said, noting it changed its practices before the FDIC and CFPB began their review.
American Express shares were up 1% at $53.22 in recent trading.
