Jamie Spencer
Settlement Reached Over Deceptive Sales Practices
American Express (NYSE: AXP) announced on Thursday that it will pay approximately $230 million to settle U.S. criminal and civil investigations into alleged deceptive sales practices targeting small business customers. The settlement resolves probes by the U.S. Department of Justice (DOJ) and includes a non-prosecution agreement.
The agreement requires Amex to pay $138.4 million, including $108 million in fines, to settle claims related to misleading business customers about credit card rewards, fees, and wire transfer products. A separate settlement with the Federal Reserve is expected to be finalized in the coming weeks.
Allegations of Misrepresentation
The DOJ investigation found that between 2014 and 2017, American Express misrepresented:
- Credit card rewards and fees to small business customers.
- Whether credit checks would be conducted without customer consent.
- Financial information submitted for prospective customers.
Additionally, between 2018 and 2021, Amex misled customers about the tax benefits of wire transfer products, specifically Payroll Rewards and Premium Wire, which became the subject of the non-prosecution agreement.
Internal Concerns and Compliance Failures
Internal Amex communications uncovered employee concerns about the Premium Wire product, with some employees calling it a “very questionable product” that allowed customers to write off expenses as business costs while benefiting personally.
The Justice Department also cited deceptive practices among Amex sales staff, who allegedly misled regulators by entering fake employer identification numbers (such as “123456788”) when issuing small business credit cards. This was done to replace discontinued co-branded Amex cards without proper regulatory oversight.
Amex’s Response and Compliance Efforts
American Express said it cooperated extensively with investigators, discontinued the problematic products, disciplined staff, and upgraded compliance and training programs to prevent future violations.
The company also emphasized that the issues identified by investigators ended no later than 2021, and the settlement will not impact its 2024 earnings forecast.
What’s Next for Amex?
With this settlement, American Express seeks to move forward after years of regulatory scrutiny. The resolution of the DOJ and Federal Reserve probes allows the company to focus on rebuilding trust with small business customers and strengthening its compliance measures.
Despite the hefty $230 million payout, Amex remains a dominant player in the credit card industry, and investors will be watching closely to see how the company navigates regulatory challenges in the future.
