American Express (NYSE:AXP) has disclosed its intention to settle investigations by U.S. regulators with a payment of $230 million. These settlements address allegations of deceptive sales practices and regulatory non-compliance involving its small business credit card operations. The case has drawn attention to the company’s sales practices, some of which reportedly misled customers and financial institutions. This development highlights the ongoing regulatory scrutiny faced by major financial institutions regarding transparency and compliance.
What prompted the regulatory investigations?
The investigations stemmed from allegations that American Express used unethical methods between 2014 and 2017 to market its credit cards to small businesses. According to the Justice Department, the company employed misleading tactics, including the use of false employer identification numbers (EINs), to facilitate credit card approvals without proper documentation. These practices were reportedly aimed at bypassing regulatory requirements, prompting federal scrutiny.
How will the settlements impact American Express?
As part of the settlements, American Express will pay $108.7 million to address allegations from the Justice Department. The company has also reached agreements with the Federal Reserve to resolve related concerns, with finalization expected within weeks. American Express has stated that these settlements resolve previously disclosed investigations and reflect its efforts toward compliance enhancements.
“We cooperated extensively with these agencies and our regulators and took decisive voluntary action to address these issues, including discontinuing certain products several years ago, conducting a comprehensive internal review, taking appropriate disciplinary measures, making organizational changes, and enhancing policies, compliance, and training programs,” said American Express in its official statement.
Regulators initially began examining American Express’s business credit card sales tactics in 2020, with reports in 2021 indicating that the Federal Reserve was investigating whether the company’s aggressive marketing caused harm to small-business owners. At the time, American Express acknowledged its cooperation with the regulatory review process but emphasized that the sales practices in question had ended in 2016.
This is not the first time American Express has faced regulatory scrutiny. A similar inquiry in the past focused on compliance failures, resulting in initiatives to bolster internal oversight. These incidents underscore the challenges financial service providers encounter in adhering to evolving regulatory standards, particularly in areas involving small business clients.
American Express’s resolution of these investigations sheds light on the complexities of regulatory compliance in financial services. For businesses, this case serves as a reminder of the importance of thorough oversight in sales practices and documentation. The payment of $230 million is one of many measures aimed at addressing past misconduct while reinforcing compliance protocols. As regulatory frameworks become more stringent, companies like American Express may need to reevaluate their operational strategies to prevent similar issues in the future.
