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NOTE 13
GUARANTEES
The Company provides cardmember protection plans that cover
losses associated with purchased products, as well as certain
other guarantees in the ordinary course of business which are
within the scope of GAAP governing the accounting for
guarantees. For the Company, guarantees primarily consist of
card and travel protection programs, including:
•Credit Card Registry — cancels and requests replacement of
lost or stolen cards, and provides for fraud liability coverage;
•Return Protection — refunds the price of eligible purchases
made with the card where the merchant will not accept the
return for up to 90 days from the date of purchase;
•Account Protection — provides account protection in the
event that a cardmember is unable to make payments on
the account due to unforeseen hardship; and,
•Merchant Protection — protects cardmembers primarily
against non-delivery of goods and services, usually in the
event of bankruptcy or liquidation of a merchant. In the
event that a dispute is resolved in the cardmember’s favor,
the Company will generally credit the cardmember account
for the amount of the purchase and will seek recovery from the
merchant. If the Company is unable to collect the amount
from the merchant, it will bear the loss for the amount
credited to the cardmember. The Company mitigates this
risk by withholding settlement from the merchant or
obtaining deposits and other guarantees from merchants
considered higher risk due to various factors. The amounts
being held by the Company are not significant when compared
to the maximum potential amount of undiscounted
future payments.
In relation to its maximum amount of undiscounted future
payments as seen in the table that follows, to date the
Company has not experienced any significant losses related to
guarantees.The Company’s initial recognition of guarantees is at
fair value, which has been determined in accordance with GAAP
governing fair value measurement. In addition, the Company
establishes reserves when an unfavorable outcome is probable
and the amount of the loss can be reasonably estimated.
The following table provides information related to such
guarantees as of December 31:
Type of Guarantee 2010 2009 2010 2009
Maximum amount of
undiscounted future
payments
(a)
(Billions)
Amount of related
liability
(b)
(Millions)
Card and travel
operations
(c)
$67 $66$ 114 $ 112
Other
(d)
1199 74
Total $68 $67$ 213 $ 186
(a) Represents the notional amounts that could be lost under the guarantees and
indemnifications if there were a total default by the guaranteed parties. The
Merchant Protection guarantee is calculated using management’s best
estimate of maximum exposure based on all eligible claims as measured
against annual billed business volumes.
(b) Included as part of other liabilities on the Company’s Consolidated
Balance Sheets.
(c) Includes Credit Card Registry, Return Protection, Account Protection and
Merchant Protection, which the Company offers directly to cardmembers.
(d) Primarily includes guarantees related to the Company’s business
dispositions, real estate and tax, as well as contingent consideration
obligations, each of which are individually smaller indemnifications.
Refer to Note 26 for a discussion of additional guarantees of the
Company as of December 31, 2010 and 2009.
96
AMERICAN EXPRESS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS