American Express has agreed to pay approximately $230 million to resolve allegations of fraud and deceptive marketing practices, according to a statement released by the Department of Justice (DOJ) on Thursday.
The settlement includes a non-prosecution agreement with the U.S. Attorney's Office in Brooklyn, New York, and addresses allegations related to misleading tax advice and deceptive credit card and wire transfer marketing.
American Express Pays for Misleading Small Businesses on Fees and Tax Breaks
The company will pay over $138 million as part of the agreement with federal authorities, stemming from claims that American Express provided inaccurate tax advice to customers using two wire transfer products, Payroll Rewards and Premium Wire.
Launched in 2018 and 2019, these products were marketed to small and mid-sized businesses as a way to save on taxes. Customers were told that the fees for these services were deductible as business expenses, but this claim was false.
Prosecutors argued that the fees were far too high to qualify as ordinary business expenses, and the tax deductions customers were promised did not exist.
In addition to the non-prosecution agreement, American Express will pay $108.7 million to settle civil claims brought by the DOJ's Civil Division, CBNC said.
The allegations center on the company's deceptive marketing tactics when selling credit cards to small businesses from 2014 to 2017. According to the DOJ, American Express misrepresented the rewards, fees, and the consent required for credit checks.
They also allegedly used falsified financial information to mislead customers and even entered false employer identification numbers (EINs) when opening accounts for small businesses.
American Express Agrees to $230 Million Settlement After 'Dummy' EIN Scandal
The deceptive practices included using "dummy" EINs to bypass the legal requirements for issuing small business credit cards.
These practices allowed businesses to obtain cards without providing the proper information, which is against financial regulations. The DOJ has stressed that such actions threaten the integrity of the financial system.
American Express has denied some of the allegations, particularly those regarding the use of "dummy" EINs. However, the company has cooperated with authorities throughout the investigation and acknowledged its role in the misleading marketing campaigns.
As part of the settlement, American Express has taken steps to reform its operations, including firing approximately 200 employees and discontinuing the wire transfer products by the end of 2021.
According to The Hill, the settlement underscores the importance of accountability within the financial sector, as noted by Brian Boynton, the principal deputy assistant attorney general of the DOJ's Civil Division.
Boynton emphasized that deceptive sales tactics and falsified information undermine public trust in financial institutions and the broader economy.
American Express has expressed its commitment to resolving these issues and ensuring that its business practices align with regulatory standards.
While the company did not admit to wrongdoing, it has agreed to pay $230 million to settle these claims, which will bring an end to the federal investigations into the company's practices.
The settlement includes a pending agreement with the Federal Reserve, which American Express expects to finalize soon.
