American Express Fined $230M Over Deceptive Sales Practices
Hey Payments Fanatic!
American Express is shelling out $230 million to settle U.S. criminal and civil probes into misleading sales tactics targeting small businesses. The deal includes a $138.4 million payment—with $108 million in fines—and a non-prosecution agreement with the Department of Justice (DOJ). Amex is also finalizing a separate agreement with the Federal Reserve.
The DOJ claims that from 2014 to 2017, Amex misled customers about credit card rewards, fees, and unauthorized credit checks. From 2018 to 2021, the company allegedly exaggerated the tax perks of wire transfer products like Payroll Rewards and Premium Wire. Internal employee complaints even described Premium Wire as a "very questionable product."
To top it off, sales staff reportedly used fake employer ID numbers to open small business credit cards, deceiving regulators. Amex says these practices ended by 2021 and that it has since improved compliance and staff training. The company insists this settlement won’t impact its 2024 earnings forecast.
Stay tuned for more Payments updates—knowledge is your best investment!
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INSIGHTS
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GOLDEN NUGGET
Understanding Cards-as-a-Service 💡
The traditional card issuance process, while foundational to the modern financial ecosystem, is a complex system involving multiple stakeholders and steps. The issuer, typically a bank or financial institution, partners with a payment network such as Mastercard. This collaboration enables the issuance of cards that provide consumers access to credit, debit, or prepaid funds. These cards are linked to an account managed by the issuer, which holds the responsibility for underwriting, managing, and securing the financial relationship with the cardholder.
Key roles in the traditional card issuance process
1️⃣ Customer: The individual who applies for a card
2️⃣ Issuer: The bank or financial institution responsible for underwriting and managing the cardholder relationship
3️⃣ Issuer Processor: The entity that manages back-end processes, ensuring the card’s functionality and compliance with regulations
4️⃣ Payment Network: Entities that act as intermediaries between the issuer and the acquirer, facilitating secure transaction processing and communication within the payment ecosystem
5️⃣ Personalisation Bureau: Third-party providers that personalise physical cards with cardholder information and security features
6️⃣ Acquirer: The bank that processes payments for merchants and works with the issuer for transaction settlements
Source: Nicolas Pinto, Paymentology, audax and Mastercard
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