American Express to pay $230 million to settle DOJ fraud probe, deceptive marketing claim

Table of Contents

• American Express will pay about $230 million to resolve a U.S. Department of Justice investigation into charges of wire fraud involving a crime, and to settle civil allegations of deceptive marketing practices.
• The large banking company agreed to a non-prosecution deal with the federal authorities in New York.
• American Express also handled allegations by the U.S. Department of Justice's Civil Division that it had misleadingly promoted credit cards to small businesses, alongside other claims.

American Express is set to pay a total of approximately $230 million to resolve federal wire fraud investigations and settle civil allegations of deceptive marketing, the company announced on Thursday.

The tally includes over $138 million as part of a deal with the U.S. Attorney's Office in Brooklyn, New York, pertaining to claims that American Express provided "inaccurate tax advice" to its customers through two wire products.

It was accused of deceivingly marketing credit cards to small businesses, among other accusations.

American Express has also reached a tentative agreement with the Federal Reserve, agreeing to finalize the details in the coming weeks.

"Following the agreements and after refunding, American Express will pay roughly $230 million in total to settle these issues," the company said.

"American Express led their customers astray by advertising tax breaks that were never actually available," said Harry Chavis, the leading law enforcement officer for the IRS' New York office that investigates crimes.

"This deceitful marketing campaign ... involved hundreds of employees cheating their customers and the government," Chavis said.

Prosecutors stated in a press release that American Express introduced Payroll Rewards and Premium Wire products in 2018 and 2019, which were marketed as a way to earn tax savings.

Business owners, mainly from small- and mid-sized companies, were informed that the wire payment fees were tax-deductible expenses, and they would have been required to pay taxes on those fees otherwise, prosecutors claimed.

Customers were also told that "Membership Reward" points, earned as a result of their transactions, were tax-free, making the true cost of the fees less burdensome.

The pitch "relied on wrong tax advice, specifically that the wiring fee was a deductible business expense in its entirety," prosecutors stated.

The significant wiring fee charged here, far exceeding what competitors offer, is not considered a normal and essential business expense, just for personal gain.

An internal inquiry into those marketing practices in early 2021 resulted in around 200 employees being let go, according to prosecutors. By November of that year, both products were completely phased out.

A separate civil settlement was announced Thursday, focusing on accusations that American Express misled consumers by marketing credit cards through a linked company that started making sales pitches to small businesses.

Practices conducted between 2014 and 2017 involved "misrepresenting credit card rewards and fees" and "whether credit checks would be done without a customer's permission," the Department of Justice stated.

The practices allegedly included submitting fake financial information for potential customers, such as exaggerating the income of a business.

American Express allegedly attempted to "deceive its federally insured financial institution" to allow small-business customers to obtain credit cards without the legally required employer identification numbers — also known as EINs.

The United States claims that American Express employees opened small business credit cards using fake Employee Identification Numbers, such as '123456788,' during 2015 and the first half of 2016, the DOJ stated.

American Express' settlement agreement with the Department of Justice's Civil Division does not include an admission of responsibility or wrongdoing by the company, which has denied claims about the Employer Identification Numbers and deceptive credit card sales practices.

"When financial companies engage in deceitful sales strategies or intentionally mislead people to hide their failure to follow the rules, they pose a threat to the reliability of our financial system," principal deputy assistant Attorney General Brian Boynton, head of the Civil Division, stated.

"The department will ensure that those who break the rules and don't tell the truth about their business practices are held accountable," Boynton stated.