American Express Pays $230 Million for Past Sales Practices

American Express, the renowned financial services company, has reached a significant settlement with U.S. regulatory authorities over investigations into its past sales practices targeting small business customers. The company has agreed to pay approximately $230 million in total to resolve the issues, which were self-disclosed and date back to activities that ceased in 2021 or earlier. This settlement highlights the importance of regulatory compliance and ethical sales practices in the broader financial industry.

The agreements, one with the U.S. Department of Justice and another in principle with the Staff of the Board of Governors of the Federal Reserve System, conclude probes into sales strategies that American Express has since abandoned. The company has stated that it has cooperated extensively with the agencies and has taken voluntary steps to rectify the concerns raised. These steps include discontinuing certain products years ago, conducting an internal review, implementing disciplinary actions, making organizational changes, and enhancing policies and compliance training programs.

The settlement resolves allegations that American Express violated the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) by deceptively marketing credit card and wire transfer products, and by entering "dummy" Employer Identification Numbers in the credit card accounts of its affiliate bank. These practices included misrepresenting card rewards or fees, conducting credit checks without consent, submitting falsified financial information, and deceptively marketing wire transfer products with false assertions regarding tax benefits.

The settlement includes a civil penalty of $108.7 million, a criminal fine and forfeiture, and a non-prosecution agreement with the U.S. Attorney's Office for the Eastern District of New York. American Express has also taken voluntary steps to rectify the concerns raised, including discontinuing certain products, conducting an internal review, implementing disciplinary actions, making organizational changes, and enhancing policies and compliance training programs.

The settlement serves as a reminder to the broader financial industry that engaging in deceptive sales tactics or falsifying information can lead to severe consequences, including significant financial penalties and damage to reputation. It underscores the importance of adhering to applicable regulations and maintaining transparency in business practices.

Moreover, the settlement demonstrates the commitment of regulatory authorities to hold financial institutions accountable for their actions. The Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG) and the U.S. Department of Justice have worked together to investigate and prosecute these violations, sending a clear signal that such behavior will not be tolerated.

In light of this settlement, financial institutions should review their sales practices and ensure they are in compliance with relevant regulations. They should also strengthen their internal controls and compliance measures to prevent similar misconduct in the future. By doing so, they can help maintain the integrity of the financial system and avoid potential penalties and reputational damage.