American Express 2013 Annual Report Download - page 52

AMERICAN EXPRESS COMPANY
2013 FINANCIAL REVIEW
OTHER MATTERS
CERTAIN LEGISLATIVE, REGULATORY AND OTHER DEVELOPMENTS
As a participant in the financial services industry and as a bank
holding company, the Company is subject to comprehensive
examination and supervision by the Federal Reserve and to a range of
laws and regulations that impact its business and operations. In light
of legislative initiatives over the last several years and continuing
regulatory reform implementation, compliance requirements and
expenditures have risen for financial services firms, including the
Company, and the Company expects compliance requirements and
expenditures will continue to rise in the future.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank) contains a wide array of provisions intended to govern
the practices and oversight of financial institutions and other
participants in the financial markets. Among other matters, the law
created an independent Consumer Financial Protection Bureau (the
CFPB), which has broad rulemaking authority over providers of
credit, savings, payment and other consumer financial products and
services with respect to certain federal consumer financial laws.
Moreover, the CFPB has examination and enforcement authority with
respect to certain federal consumer financial laws for providers of
consumer financial products and services, including the Company and
certain of its subsidiaries. The CFPB is directed to prohibit “unfair,
deceptive or abusive” acts or practices, and to ensure that all
consumers have access to fair, transparent and competitive markets
for consumer financial products and services.
The review of products and practices to prevent unfair, deceptive
or abusive conduct will be a continuing focus of the CFPB and
banking regulators more broadly, as well as by the Company itself.
Internal and regulatory reviews have resulted in, and are likely to
continue to result in, changes to the Company’s practices, products
and procedures. Such reviews are also likely to continue to result in
increased costs related to regulatory oversight, supervision and
examination and additional restitution to the Company’s Card
Members and may result in additional regulatory actions, including
civil money penalties.
In December 2013, the Company announced that certain of its
subsidiaries reached settlements with several banking regulators,
including the CFPB, to resolve regulatory reviews of marketing and
billing practices related to several credit card add-on products. For a
description of these settlements, see “Legal Proceedings” in the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2013.
In October 2012, the Company announced that it and certain of its
subsidiaries reached settlements with several bank regulators,
including the CFPB, relating to certain aspects of the Company’s U.S.
consumer card practices, which requires the Company to undertake
certain actions that will continue in 2014. For a description of these
settlements, see “Legal Proceedings” in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2012.
Dodd-Frank prohibits payment card networks from restricting
merchants from offering discounts or incentives to customers to pay
with particular forms of payment, such as cash, check, credit or debit
card, or restricting merchants from setting certain minimum, and for
certain merchants maximum, transaction amounts for credit cards, as
long as any such discounts or incentives or any minimum or
maximum transaction amounts do not discriminate on the basis of the
issuer or network and comply with applicable federal or state
disclosure requirements.
Under Dodd-Frank, the Federal Reserve is also authorized to
regulate interchange fees paid to financial institutions on debit card
and certain general-use prepaid card transactions to ensure that they
are “reasonable and proportional” to the cost of processing individual
transactions, and to prohibit payment card networks and issuers from
requiring transactions to be processed on a single payment network or
fewer than two unaffiliated networks. The Federal Reserve’s rule
provides that the regulations on interchange and routing do not apply
to a three-party network like American Express when it acts as both
the issuer and the network for its prepaid cards, and the Company is
therefore not a “payment card network” as that term is defined and
used for the specific purposes of the rule.
Dodd-Frank also authorizes the Federal Reserve to establish
enhanced prudential regulatory requirements, including capital,
leverage and liquidity standards, risk management requirements,
concentration limits on credit exposures, mandatory resolution plans
(so-called “living wills”) and stress tests for, among others, large bank
holding companies, such as the Company, that have greater than $50
billion in assets. The Company is also required to develop and
maintain a “capital plan,” and to submit the capital plan to the Federal
Reserve for its quantitative and qualitative review under the Federal
Reserve’s CCAR process. In addition, certain derivative transactions
are now required to be centrally cleared, which will increase collateral
posting requirements for the Company.
Many provisions of Dodd-Frank require the adoption of additional
rules or regulatory guidance for complete implementation. In
addition, Dodd-Frank mandates multiple studies, which could result
in additional legislative or regulatory action. Accordingly, the ultimate
consequences of Dodd-Frank and its implementing regulations on the
Company’s business, results of operations and financial condition
continues to be uncertain at this time.
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