Amex Investigated Over Business Sales Practices
American Express has disclosed in a Securities and Exchange Commission filing that the Office of the Comptroller of the Currency, the civil division of the Justice Department, and federal prosecutors in Brooklyn are investigating its small-business sales practices, as reported by Business Insider.
In 2021, a whistleblower lodged a complaint with the Internal Revenue Service over a product based on a dubious interpretation of tax laws. In California, a former employee has claimed in a legal filing that salespeople were pressured to sell the product “marketed as tax write-off vehicles.”
The company has already fired or re-assigned many members and leaders of the sales team in question which dealt with US small and mid-sized business payments. Amex has sought to portray the effort to sell the tax product as the work of rogue salespeople acting contrary to what the company intended. This “trick” allowed small-business owners to use business income to pay employee expenses in return for personal credit-card rewards points. Amex has not placed any blame on more senior executives.
The division-wide sales push included regional and national training, sample email templates, and scripts which were reviewed by Business Insider. The effort gained steam when a top sales manager sent a June 2019 email dialing up commissions for selling the product. Salespeople who didn’t sell it, according to one person, were placed on a “bad list.”
Called Premium Wire, this product allowed customers to use their Amex account to fund payroll. Amex would send a wire on a client’s behalf to its payroll company, which would then pay employees. Business owners repaid Amex, plus a fee, which some salespeople told the owners they could write off as a business expense. According to a rate sheet viewed by Insider, the fee ranged from 1.77% to 3.49%, depending on the size of the wire. For every dollar sent by wire, customers received one reward point.
The product took advantage of IRS guidance from 2002 that said the government wouldn’t object to the personal use of frequent-flier miles earned on business expenses. But the IRS said the relief it was granting on frequent-flier rewards “does not apply to travel or other promotional benefits that are converted to cash.”
However, during a call in 2019, slides featuring official Amex branding and disclaimers promoted Premium Wire. And they also promoted a deal Amex had with Charles Schwab that allowed customers to transfer Amex rewards points for cash that would go into their Schwab account at a rate of 1.25% (now 1.15%). For every 1,000 points transferred, in other words, clients would get $12.50 in their Schwab account.
One slide was titled “Charles Schwab Strategy Allows You to Turn Membership Rewards Points Into Cash,” while another offered best practices for speaking to clients with one question being “Are you more interested in driving profitability to your business’ bottom line or increasing your own personal net worth?”
A calculation on another slide shows how a business expense could be transferred into a “Personal Tax Free benefit.” Wiring $1 million would incur a 1.77% fee, or $17,700 — but if expenses were deducted by a business with a 35% tax rate, that fee would drop to $11,505. Those 1 million membership rewards points could then be converted into $12,500 at Schwab.
By the end of 2019, Amex booked at least $1.2 billion in Premium Wire volume, according to an internal presentation viewed by Insider.
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