- Amex is under investigation by the US Treasury Department, Federal Deposit Insurance Corp., and the Federal Reserve due to allegations of card selling misconduct.
- This could potentially put its business at risk.
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Investigators at the US Treasury Department, Federal Deposit Insurance Corp. (FDIC), and the Federal Reserve are looking into whether Amex salespeople used aggressive or misleading tactics to issue credit cards to business owners, per The Wall Street Journal.
Meanwhile, the Office of the Comptroller of the Currency (OCC) is examining the issuer’s overall card selling practices. The investigations come amid claims that Amex is misrepresenting card rewards and blurring information regarding fees to help boost business card sales. In response to brewing allegations, an Amex spokesperson told The Journal that the firm has robust compliance policies in place and that it has been conducting reviews of card sales from previous years.
These allegations come on the heels of earlier reports regarding the issuer’s business card selling tactics. In March 2020, it was purported that Amex had implemented aggressive tactics to boost small business sign-ups. Some business owners alleged unethical actions from Amex salespeople, such as forced credit checks and, in extreme cases, unauthorized credit card issuing.
These practices were reportedly used to offset the 2015 demise of Amex’s long-standing lucrative partnership with Costco Wholesale, which didn’t accept credit card payments besides those from Amex cardholders for 16 years. An internal review from Amex at the time determined that a “very small number of cases was found to be inconsistent with selling policies,” but it was reportedly dealt with through disciplinary action. There seems to be a connection between the latest allegations and the claims from March, with regulators now getting involved.
The recent claims against Amex’s selling tactics could have a negative impact on its business as it attempts to offset pandemic declines.
- Small- and medium-sized businesses (SMBs) might shy away from Amex, which would be a major blow for its business. SMBs accounted for 19% of Amex’s overall loan mix in Q3 2020—representing a huge customer market for Amex since SMBs typically have several spending needs that they can use a credit card to fund. Even more so, the SMB market offers vast customer potential for Amex, considering there were 31.7 million small businesses in the US in 2020, accounting for nearly 99.9% of all US businesses, according to data from the US Small Business Administration. The recent claims against the issuer might cause potential SMB customers to avoid Amex if they perceive there to be financial risk—which could severely impact its future volume.
- Any potential penalties or restrictions that arise from the investigation could hurt Amex’s business in the long run. If federal investigators find evidence of misconduct, they may decide to impose restrictions that change how Amex can operate and attain customers, impacting its payments volume potential, which has just started to recover. Amex’s volume took a major hit in Q2 2020 as a result of the coronavirus pandemic, with proprietary billed business plummeting 35% year over year (YoY). Thanks to its expanded rewards offerings and an improvement in overall economic conditions, that volume recovered in Q3, declining only 20% YoY. But a potential federal penalty could hamper that recovery and make it harder for Amex to keep pace with competing issuers.
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