American Express Settles $108.7 Million Compliance Case With Justice Department

American Express, a global financial services company, has reached a significant settlement with the U.S. Department of Justice, agreeing to pay $108.7 million to resolve allegations of violating the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). The settlement stems from American Express' deceptive marketing practices and record-keeping violations, which spanned from 2014 to 2021.

The Department of Justice accused American Express of engaging in several improper activities, including:

1. Misleading small business customers about credit card rewards, fees, and credit checks: American Express allegedly misrepresented the benefits and costs of its credit cards, as well as whether credit checks would be conducted without a customer's consent.
2. Submitting falsified financial information for prospective customers: The company is accused of overstating a business's income to make it appear more creditworthy.
3. Using "dummy" Employer Identification Numbers (EINs): American Express employees allegedly used fabricated EINs, such as "123456788," to open 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.
4. Deceptively marketing wire transfer products: From 2018 through 2021, American Express employees allegedly misrepresented the tax benefits of its Payroll Rewards and Premium Wire products. They told customers that the wire transfer fees were tax-deductible as business expenses, while the reward points earned on the transaction were not taxable, thereby affording the customer tax-free benefits. However, the above-market wiring fee was not deductible as an ordinary or necessary business expense, as it was incurred solely for the purpose of generating a personal benefit.

These compliance issues led to American Express' $108.7 million civil penalty, as the company violated the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) through its unlawful sales tactics and record-keeping requirements, and deceived small business customers who placed their trust in the company.

American Express has implemented several organizational changes to prevent future compliance issues. These changes include:

1. Discontinuing certain products: American Express discontinued the Payroll Rewards and Premium Wire products, which were at the center of the wire fraud investigation.
2. Conducting a comprehensive internal review: The company conducted an internal investigation to identify and address any other potential compliance issues.
3. Taking appropriate disciplinary measures: American Express terminated approximately 200 employees in 2021 as a result of the internal investigation, indicating that the company held individuals accountable for their actions.
4. Making organizational changes: The company made changes to its organizational structure to improve oversight and prevent future misconduct.
5. Enhancing policies, compliance, and training programs: American Express strengthened its policies, compliance procedures, and training programs to ensure that employees understand and adhere to the company's ethical standards and legal obligations.

These organizational changes demonstrate American Express's commitment to addressing the identified compliance issues and preventing similar problems in the future. The settlement serves as a reminder for financial institutions to maintain high ethical standards and comply with relevant regulations to protect the interests of their customers and the integrity of the financial system.