The digital payments landscape continues to grapple with regulatory scrutiny, as demonstrated by recent settlements involving industry heavyweights American Express and Block (formerly Square).
Block and American Express forced to pay big fines
These cases underscore the increasing importance of compliance, transparency and robust operational practices in fostering trust and stability within the sector.
American Express Faces $230 Million Penalty
American Express recently agreed to pay approximately $230 million to resolve allegations of deceptive marketing and wire fraud.
The penalties stem from a non-prosecution agreement with the US Attorney’s Office in Brooklyn and civil claims by the Department of Justice (DOJ).
The company faced accusations of misleading small and mid-sized business customers by promoting wire products – Payroll Rewards and Premium Wire – as tax-saving tools, despite offering inaccurate tax advice.
These products, marketed between 2018 and 2019, purportedly provided tax-deductible wiring fees and tax-free membership rewards, but prosecutors argued that the fees were not “ordinary” or “necessary” business expenses under tax law.
In addition to the wire fraud case, American Express settled allegations of deceptive credit card marketing targeting small businesses.
Between 2014 and 2017, the company allegedly misrepresented rewards and fees, submitted falsified financial information and used invalid employer identification numbers (EINs) to facilitate card issuance.
While denying certain allegations, American Express acknowledged shortcomings and promised to further its commitment to ethical practices moving forward.
Block Settles for $255 Million Over Cash App
Digital payments provider Block also faced substantial regulatory action, agreeing to pay $255 million to resolve federal and state investigations into its Cash App service.
The settlement includes a $55 million penalty to the Consumer Financial Protection Bureau (CFPB), $80 million in fines to state regulators and $120 million earmarked to compensate victims of fraud.
The CFPB highlighted deficiencies in Cash App’s customer service and fraud prevention measures.
Block was accused of employing weak security protocols, conducting insufficient investigations into unauthorised transactions and deflecting financial losses onto consumers and their banks.
The company’s practices allegedly enabled criminal activities, compromising trust in the platform.
In addition to federal penalties, state regulators identified shortcomings in Block’s compliance with anti-money laundering laws and the Bank Secrecy Act.
The company has since pledged to enhance its compliance infrastructure, including implementing AI-driven fraud detection and improving customer support.
Focus on Accountability in Fintech
These settlements spotlight the heightened regulatory expectations in the fintech and payments sectors.
Both American Express and Block serve as cautionary tales for other financial services companies navigating complex regulatory landscapes.
Key takeaways for industry players include:
- Transparency Is Non-Negotiable: Misleading marketing tactics and unclear product descriptions can result in significant financial and reputational damage.
- Robust Compliance Programs Are Essential: As regulators tighten oversight, companies must prioritise robust compliance frameworks to address risks related to fraud, money laundering and cybersecurity.
- Investing in Customer Support: Poor customer service can exacerbate regulatory issues. Companies must ensure that dispute resolution and fraud prevention processes are efficient and user-focused.
The settlements, along with the current Capital One case, highlight that the regulators are zeroing in on bad practice and the need for financial institutions to adopt proactive measures to align with evolving regulatory standards.
As the digital payments ecosystem grows, companies that prioritise transparency, compliance and customer trust will be best positioned to thrive.
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