American Express charged higher interest rates and annual fees for more than a decade to cardholders in Puerto Rico, the U.S. Virgin Islands and other U.S. territories, compared with customers in the U.S., the Consumer Financial Protection Bureau said Wednesday.

According to a consent order signed between the bank and the agency, the CFPB alleged various "discriminatory policies" by American Express that harmed at least 200,000 consumers, most of them Spanish speakers.

However, the CFPB said that American Express did not intentionally discriminate against its customers, but rather had different business units and practices overseeing its cards in the U.S. than in other U.S. territories, which include Guam, American Samoa and the Northern Mariana Islands.

American Express building.
American Express now manages its Puerto Rico cards under the same division as its U.S. cards, the CFPB said. Bloomberg News

American Express rejected the CFPB's allegations of discrimination. The New York credit card giant said it agreed to the consent order to avoid the cost of protracted litigation.

"American Express does not tolerate discrimination in any form and is committed to ensuring that consumers are treated fairly," the company said in a statement. "Having long since taken actions that the CFPB subsequently ratified, the company decided to settle with them rather than go through years of litigation that would have provided no additional value to any of its customers."

The company said it "voluntarily" paid $95 million in remediation, including nonmonetary relief, to more than 220,000 consumers.

The CFPB did not impose any fines or penalties because American Express self-reported the issue in 2012, provided relief to consumers, and cooperated with the investigation. American Express will pay at least another $1 million "to fully compensate harmed consumers," the agency said.

American Express said in its statement that the card products in 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 is committed to making its products available to every qualified person regardless of race or ethnic background, and it does not use race or ethnicity as a determining factor for credit," it said.

From 2005 to 2015, American Express' two credit and charge card subsidiaries, American Express Centurion Bank and American Express Bank, offered "worse" pricing, rebates and promotional offers on its Puerto Rico cards compared with the U.S. market, the CFPB found.

American Express also applied stricter credit score requirements, imposed lower initial credit limits and denied credit to certain Puerto Rico card applicants who would have been approved for comparable U.S. cards if they had lived in the states, the CFPB said.

One of the company's banks, which the CFPB did not name, "outright denied" consumer and small-business cards to Puerto Rico residents that were offered to U.S. residents, harming more than 35,000 consumers, the bureau said.

In addition, debt collectors required that Puerto Rico cardholders settle debts on less favorable terms than those in the U.S., paying roughly 73 cents on the dollar of the amount owed, compared with 55 cents paid by U.S. cardholders.

Further, Puerto Rico cardholders were not given advantageous debt settlement offers, including benefits for paying all or part of their past-due balances. Some of the practices affected cardholders who specifically requested communication in Spanish. The different collection practices harmed more than 53,000 cardholders, the CFPB said.

“Consumer financial protections are not confined within the 50 states,” CFPB Director Richard Cordray said in a press release. “American Express discriminated against consumers in Puerto Rico and the U.S. territories by providing them with less-favorable financial products and services. They have ceased this practice and are making consumers whole. In particular, because they self-reported the problem and fully cooperated with our investigation, no civil penalties are being assessed in this matter.”

As part of the consent order, American Express must develop a compliance plan to provide credit and charge cards "in a non-discriminatory manner to consumers in Puerto Rico, the U.S. territories and customer in collection who prefer Spanish-language communications," the CFPB said in its release.

American Express now manages its Puerto Rico cards under the same division as its U.S. cards, the CFPB said.

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Kate Berry

Kate Berry

Kate Berry covers the Consumer Financial Protection Bureau for American Banker.