American Express to Pay $230 Million for Deceptive Marketing Practices

American Express (AXP) has agreed to pay a $230 million settlement to resolve a long-running investigation into its deceptive marketing practices, as reported by Reuters. The settlement includes a $108.7 million civil penalty and a separate agreement with the U.S. Attorney's Office for the Eastern District of New York, which deals with the Payroll Rewards and Premium Wire programs. The misconduct involved several deceptive practices that targeted small business owners.



From 2014 through 2017, American Express deceptively marketed credit cards through an affiliated entity that initiated sales calls to small businesses. The company allegedly misrepresented card rewards or fees and whether credit checks would be done without a customer's consent. They also submitted falsified financial information for prospective customers, such as overstating a business's income. Additionally, American Express employees used "dummy" Employer Identification Numbers (EINs), such as "123456788," in opening small business credit cards in 2015 and the first half of 2016. These cards were sold to replace an American Express co-branded credit card that was being discontinued during that time period. The company allegedly allowed these "dummy" EINs to remain on the credit card accounts for up to two years before remediating the problem.

Furthermore, from 2018 through 2021, American Express employees deceptively marketed wire transfer products known as Payroll Rewards and Premium Wire to its small business customers. They made false assertions regarding these products' tax benefits, claiming that the wire transfer fees were tax deductible as business expenses, while the reward points earned on the transaction were not taxable. The United States contended that the above-market wiring fee was not deductible as an ordinary or necessary business expense.

The settlement sends a clear message to financial companies that engaging in deceptive sales tactics or falsifying information to cover up failures to follow applicable regulations will not be tolerated. The Department of Justice will hold accountable those who violate the trust placed in them to follow the rules governing financial institutions and be truthful about their business practices.

In conclusion, American Express' $230 million settlement serves as a reminder that financial institutions must adhere to regulations and maintain transparency in their marketing practices. The company's deceptive marketing tactics, including the use of "dummy" EINs and false tax benefit claims, have resulted in significant penalties and a tarnished reputation. As the financial industry continues to evolve, it is crucial for companies to prioritize ethical business practices and comply with relevant regulations to maintain the integrity of the financial system.