Recently, American Express Co. (AXP - Free Report) disclosed having incurred $95 million in claims to settle cardholders’ discrimination.
This inconsistency surfaced during the company’s internal review process (which began in 2012) of its card product offerings in Puerto Rico, the U.S. Virgin Islands and the Pacific Territories.
The findings point to the fact that the terms and conditions and other frills and facilities provided on cards issued to customers in these regions were less generous and attractive compared to the ones issued in the Continental U.S.
The company clarified that cards issued in any region are accordingly customized to make sure that its services and benefits are locally relevant to provide superior value to its card members.
Management also said that the cards issued in the U.S. were highly competitive and offered to the public in general without any reservation pertaining to caste or creed. The company, however, confessed the relative inferiority in cards issued in the Pacific and Atlantic territories and that this should not have been so.
American Express voluntary reported this to the Consumer Financial Protection Bureau and accepted its shortcoming by a compensation of $95 million from 2013-2013 to more than 200,000 affected customers.
The regulators acknowledged this remedial measure taken by the company that saved it from civil penalties. Regulators have, however, asked the company to make an additional payment of $1 million.
The bureau also accused American Express of discriminating between its customers on the basis of race and ethnic background, which has been rebuffed by the latter.
Year to date, the company’s shares have returned 31%, outpacing the 22% gain by the industry it belongs to.
We believe this settlement by American Express is aimed at shielding its customer base. It should help in customer retention and stabilizing market share.
The payments space is intensely competitive which makes it a hard task to tap new customers and retain old ones, something which is imperative for long-term growth for the players in this industry.
American Express has in the recent past sustained weak results from parting ways with one of its major clients Costco Wholesale Corp. (last year). In order to make up for the loss from this foregone business, the company took up massive marketing expenditure and won some clients and deals though not as big as Costco.
The company is thus not in a position to face any unfavorable development which may further hurt its already fragile business.
Zacks Rank and Stocks to Consider
American Express carries a Zacks Rank #3 (Hold). Some better-ranked players in the same space are Green Dot Corp. (GDOT - Free Report) , Vantiv, Inc. and Western Union Co. (WU - Free Report) . While Green Dot sports a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Green Dot has been witnessing upward estimate revisions for the last 30 days. In one year, the company’s share price has risen more than 99%.
Vantiv has been witnessing upward estimate revisions for the last 30 days. Further, the stock has surged nearly 35.1% in the last 12 months.
Western Union has been recording upward estimate revisions for the last 30 days. It beat estimates in two of the last four quarters, with an average positive surprise of 4%.
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