American Express on Tuesday announced a $76 million settlement with several banking regulators over charges subsidiaries of the credit card company used deceptive marketing and billing practices.
American Express (AXP) allegedly overstated some benefits available to cardholders and charged for benefits some cardholders didn't receive.
In a statement, American Express said it will pay fines totaling $16.2 million and $59.5 million in restitution to customers.
American Express said most of the costs associated with the settlements have been provided for in prior quarters, and most of the remediation has already been provided to customers.
The settlements were reached by American Express Travel Related Services Co., American Express Centurion Bank and American Express Bank, the company said.
The regulators involved included the Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., and the Office of Comptroller of the Currency.
American Express said it "cooperated fully" with the investigation.
The banking regulators said American Express violated federal laws by misleading consumers about the benefits of so-called add-on products, %VIRTUAL-article-sponsoredlinks%or benefits provided to customers in addition to the use of the credit card.
For example, American Express allegedly misled consumers about the length of its "Account Protector" add-on product. Consumers were told the benefits would continue for up to 24 months but the majority of benefits lasted no more than three months, regulators said.
Consumers were also led to believe that if they purchased the product their monthly minimum payment would be cancelled under certain conditions such as if the card holder lost their job. But the benefit payment was limited to 2.5 percent of the card holder's outstanding balance, up to $500, which could be less than the minimum monthly payment.
Regulators said American Express also misled consumers about the terms and conditions of its "Lost Wallet" add-on product through telemarketing calls conducted in Spanish to card holders in Puerto Rico.
In addition, consumers were misled about the process for enrolling for identity theft products, according to regulators. The process required two steps but 85 percent of the card holders affected failed to complete the process and were billed anyway, according to the allegations.
The settlement requires American Express to take steps to fix its marketing and billing practices.
Why Your Bank Thinks Someone Stole Your Credit Card
American Express Settles Charges Over Deceptive Practices
One reason why Marquis' gas purchases might have triggered a fraud lockdown? Filling their tank is a common first move for credit card thieves.
"Some of the things they look at are small-dollar transactions at gas stations, followed by an attempt to make a larger purchase," explains Adam Levin of Identity Theft 911.
The idea is that thieves want to confirm that the card actually works before going on a buying spree, so they'll make a small purchase that wouldn't catch the attention of the cardholder. Popular methods include buying gas or making a small donation to charity, so banks have started scrutinizing those transactions.
Of course, it's not a simple matter of buying gas or giving to charity -- if those tasks triggered alerts constantly, no one would do either with a credit card. But Levin points to another possible explanation: Purchases made in a high-crime area are going to be held to a higher standard by the bank.
"It's almost a form of redlining," he says. "If there are certain [neighborhoods] where they've experienced an enormous amount of fraud, then anytime they see a transaction in the neighborhood, it sends an alert."
(Indeed, Erin tells me that one of the gas purchases that triggered an alert took place in a rough part of Detroit, which she visited specifically for the cheap gas.)
People who steal credit cards and credit card numbers usually aren't doing it so they can outfit their home with electronics and appliances. They don't want the actual products they're fraudulently buying; they're just in it to make money. So banks are always on the lookout for purchases of items that can easily be re-sold.
"Anytime a product can be turned around quickly for cash value, those are going to be the items that you would probably assume that, if you were a thief, you would want to get to first," says Karisse Hendrick of the Merchant Risk Council, which helps online merchants cut down on fraud. Levin says electronics are common choices for fraudsters, as are precious metals and jewelry.
Many thieves don't want to go through the rigmarole of buying laptops and jewelry, then selling them online or at pawnshops. They'd much prefer to just turn your stolen card directly into cold, hard cash.
There are a few ways that they can do that, and all of them will raise red flags at your bank or credit union. Using a credit card to buy a pricey gift card or load a bunch of money on a prepaid debit card is a fast way to attract the suspicions of your credit card issuer. Levin adds that some identity thieves also use stolen or cloned credit cards to buy chips at a casino, which they can then cash out (or, if they're feeling lucky, gamble away).
When assessing whether a purchase might be fraudulent, banks aren't just looking at what you bought and where you bought it. They're also asking if it's something you usually buy.
"The issuers know the buying patterns of a cardholder," says Hendrick. "They know the typical dollar amount of transaction and the type of purchase they put on a credit card."
Your bank sees a fairly high percentage of your purchases, so it knows if one is out of character for you. A thrifty individual who suddenly drops $500 on designer clothes should expect to get a call -- or have to make one when the bank flags the transaction. If you rarely travel and your card is suddenly used to purchase a flight to Europe, that's going to raise some red flags.
Speaking of Europe, the other big factor in banks' risk equations is whether you're making a purchase in a new area. I bought a computer just days after moving from Boston to New York, and had to confirm to the bank that I was indeed trying to make the purchase. Levin likewise says that making purchases in two different cities over a short period of time raises suspicions.
"I go from New York to California a lot, and invariably someone will call me [from the bank], " he says. Since one person can't go shopping in New York and California at the same time, any time a bank sees multiple purchases in multiple locations in a short period, it's going to be suspicious.