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Alex Kimani

Alex Kimani

Writer, Divergente Research LLC

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Divergente Research LLC and Safehaven.com. 

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Credit Card Giant Caught Swindling Customers

Crime

Modern banks seem to be living by the age-old mantra, “If you ain’t cheating, you ain’t trying”, and there is rarely a breather between bank scandals these days.

Whether it’s murky procedures or manipulative activities, the unwitting customer is usually at the receiving end of their never-ending chicanery. Just a couple of months ago, several high-profile investment banks were handed hefty fines for rigging the derivatives market.

And now, yet another financial icon has been caught with its hand in the cookie jar.

Shares of credit card giant American Express have slipped three percent after a new report emerged that the company allegedly has been purposefully jacking its forex prices for small businesses behind their backs—for more than a decade.

AmEx mostly used its dirty tactics on small clients who were less likely to notice the small changes in forex rates—in the bank’s favor, according to the report.

It also noted that the company would first recruit small- and mid-sized business customers by offering them highly competitive currency-conversion rates, only to later jack the rates without first notifying the clients. In earlier years, some customer margins climbed as much as three percentage points but the company later lowered it to 0.05-0.25 of a percentage point this year, the report said.

AmEx Unable To Refute Claims

The practice was intended to increase the company’s revenue as well as employee commissions, according to both current and former AmEx employees.

Sales people would lure in customers by promising to beat the price they were paying at another financial institution for converting currencies or sending money overseas. But they failed to tell the customers that the margin could be raised without notice. Margin is the company’s markup that is tacked onto the base currency exchange rate.

Most customers would be left none the wiser after the increase. If a customer with a sharp eye, however, caught on to the increase and inquired from the bank, salespeople would blame a glitch or some other technicality and then lower the margin for that particular customer.

An AmEx rep told the Wall Street Journal that "our transactions are completed and reported in a fair and transparent manner at the rates which the client has authorized."

Related: Trump Administration Offers Alternative To ‘One Belt, One Road’

It’s however, instructive to note that the company has not specifically denied increasing rates without first telling people.

AmEx In Trouble

It’s going to be a minor miracle if American Express does not soon find itself surrounded by a litany of lawsuits from angry customers. But the company probably will not lose sleep over it. After all, it’s hardly its first such transgression. 

In 2013, the company and its subsidiaries were forced to pay fines totaling $16.2 million and provide customer remediation to the tune of $59.5 million after regulatory authorities--including CFPB, FDIC and OCC--found it guilty of several marketing and billing malpractices.

A proper forensic study will probably be carried out to determine the extent of the damages that the company wrought on unsuspecting customers in the form of excessive fees.

Still, it’s unlikely that it’s going to turn out to be anything like the cartel run by six banks that were charged with rigging foreign exchange markets on a massive scale in 2015. The U.S. Department of Justice fined JPMorgan Chase, Citibank, Barclays and Royal Bank of Scotland $5.6B after finding them guilty of the crime.

It was an elaborate operation where traders from banks across the globe lurked in private chat rooms and worked to rig the forex markets. Their trail of destruction was uncovered via chat room transcripts with one Barclay’s trader famously quipping: “The worst price I can put on this where the customers decision to trade with me or give me future business doesn’t change … if you ain’t cheating, you ain’t trying”.

By Alex Kimani for Safehaven.com

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Leave a comment
  • Fee Leung on August 01 2018 said:
    Corporations do not commit crimes, individuals in the corporations commit the crimes. Time to identify the people who ordered the rates changed and have them face civil and criminal liabilities. That is how you stop this nonsense. Fining the corporation will result in the layoff of low level employees who had nothing to do with this affair. In the mean time the ones who carried out the scheme get to keep their performance bonuses, salary increases and in some cases left before the house of card imploded with a nice golden parachute. Now they are enjoying riding their cigar boat off the Florida coast, with their trophy wife at their side and living in a beautiful MacMansion by the ocean, sending a message to the younger upcoming executives and salespersons - If you got the guts, crime does pay.

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