American Express Credit Corporation (Credco) was incorporated in Delaware in
1962 and was acquired by American Express Company (American Express) in December
1965. On January 1, 1983, Credco became a wholly owned subsidiary of American
Express Travel Related Services Company, Inc. (TRS), a wholly owned subsidiary
of American Express. Both American Express and TRS are bank holding companies.
Credco is engaged in the business of financing non-interest-earning Card Member
receivables arising from the use of the American Express® Green Card, the
American Express® Gold Card, Platinum Card®, Corporate Card and other
American Express cards issued in the United States and in certain countries
outside the United States. Credco also finances certain interest-earning revolving
loans generated by Card Member spending on American Express credit cards issued
in non-U.S. markets, although interest-earning and revolving loans are primarily
funded by subsidiaries of TRS other than Credco. American Express charge cards
and American Express credit cards are collectively referred to herein as the
card.
American Express is a global services company that provides customers with
access to products, insights and experiences that enrich lives and build business
success. American Express’ principal products and services are charge
and credit payment card products and travel-related services offered to consumers
and businesses around the world.
American Express’ products and services are sold globally to diverse
customer groups, including consumers, small businesses, mid-sized companies
and large corporations. As a merchant processor, TRS accepts and processes from
each participating establishment the charges arising from Card Member purchases.
TRS charges a fee, the “merchant discount,” to the merchant that
reflects the value that is delivered to the merchant and the investments made
in providing that value. Value is delivered to the merchant in a variety of
ways, including through higher spending Card Members relative to users of cards
issued on competing card networks, product and network features and functionality,
marketing expertise and programs, information services, fraud prevention services,
dedicated client management group and other investments that enhance the merchant
value propositions associated with acceptance of the card. When establishing
the merchant discount rate, consideration is also given to a number of other
factors, such as industry-specific requirements, merchants’ charge volume,
the timing and method of payment to the merchant, the method of submission of
charges and, in certain instances, the geographic scope of the card acceptance
agreement.
The charge card, which is marketed in the United States and many other countries
and generally carries no preset spending limit, is designed as a method of payment.
Charges are approved based on a variety of factors including a Card Member’s
current spending patterns, payment history, credit record and financial resources.
Card Members generally must pay the full amount billed each month. Charge cards
do offer several ways for eligible Card Members to pay off purchases over time.
For example, Select & Pay Later® allows enrolled Card Members to select
individual charges to pay over time and the Extended Payment Option provides
eligible Card Members with the ability to extend payment for eligible charges
above a certain dollar amount. Charge card accounts that are past due are subject,
in most cases, to a delinquency assessment and, if not brought to current status,
may be suspended or cancelled. The no-preset spending limit and pay-in-full
nature of these products attract high-spending Card Members, while allowing
American Express to manage risk accordingly. In addition to charge cards, TRS
and its subsidiaries and licensees also offer a variety of revolving credit
cards marketed in the United States and other countries. These cards have a
range of different payment terms, interest rate and fee structures.
American Express’ card businesses are subject to extensive regulation
in the United States, including pursuant to:
The Equal Credit Opportunity Act (which generally prohibits discrimination in
the granting and handling of credit)
The Fair Credit Reporting Act (FCRA) as amended by the Fair and Accurate Credit
Transactions Act (FACT Act) (which, among other things, regulates use by creditors
of consumer credit reports and credit prescreening practices and requires certain
disclosures when an application for credit is rejected)
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the
CARD Act) (which prohibits certain acts and practices in connection with consumer
credit card accounts)
The Truth in Lending Act (TILA) (which, among other things, requires extensive
disclosure of the terms upon which credit is granted), including the amendments
to TILA that were adopted through the enactment of the Fair Credit and Charge
Card Disclosure Act (which mandates certain disclosures on credit and charge
card applications)
Regulation Z (which implements TILA and was amended by the Federal Reserve Board
(Federal Reserve) to extensively revise the open end consumer credit disclosure
requirements and implement the requirements of the CARD Act
The Consumer Financial Protection Act (Title X of the Dodd-Frank Wall Street
Reform and Consumer Protection Act) (Dodd-Frank) (CFPA)
The Fair Credit Billing Act (which, among other things, regulates the manner
in which billing inquiries are handled and specifies certain billing requirements)
The Truth in Savings Act (which requires certain disclosures about rates paid
and other terms of deposit accounts)
The Electronic Funds Transfer Act (which, among other things, governs disclosures
and settlement of transactions for electronic funds transfers and customer rights
and liability arising from the use of ATMs and other electronic banking services
and, after the enactment of Dodd-Frank, imposes a cap on debit card interchange
fees and prohibits exclusivity arrangements for payment card networks)
The Telephone Consumer Protection Act (which prohibits contacting customers
on their cellular telephones without their express consent, and provides for
significant statutory damages)
The Controlling the Assault of Non-Solicited Pornography and Marketing Act of
2003 (which established national requirements for sending of commercial email
messages and which provides for significant statutory damages for violations)
Federal and state laws and regulations that generally prohibit engaging in unfair,
deceptive and abusive acts and practices in offering consumer financial products
and services
In the United States, American Express’ marketing and sale of consumer
financial products and its compliance with certain federal consumer financial
laws, including the CFPA and TILA, are supervised and examined by the Consumer
Financial Protection Bureau (CFPB). The CFPB has broad rulemaking and enforcement
authority over providers of credit, savings and payment services and products
and authority to prevent “unfair, deceptive or abusive” acts or
practices. The CFPB has the authority to write regulations under federal consumer
financial protection laws and to enforce those laws against and examine for
compliance large financial institutions like American Express and TRS. It is
also authorized to collect fines and require consumer restitution in the event
of violations, engage in consumer financial education, track consumer complaints,
request data and promote the availability of financial services to underserved
consumers and communities. In addition, a number of U.S. states have significant
consumer credit protection and disclosure laws (in certain cases more stringent
than U.S. federal laws). U.S. federal law also regulates abusive debt collection
practices. Bankruptcy and debtor relief laws can affect American Express’
ability to collect amounts owed to it.
Credco engages in the business of financing the Card Member receivables and
loans of its affiliates. The use of a centralized funding source for assets
originated by affiliated entities provides operational efficiency in the form
of a single point of issuance to investors in the capital markets. Because its
business operations have the limited scope of providing funding to its card-issuing
affiliates, Credco’s results remain separate from other sources of volatility
and risk inherent in the businesses of American Express and its other affiliates,
making credit evaluations by investors and rating agencies less complex. The
separation of Credco from American Express and its other affiliates also allows
American Express to provide Credco with financial support with respect to maintenance
of its minimum overall 1.25 fixed charge coverage ratio, which is achieved by
charging appropriate discount rates on the purchases of receivables Credco makes
from, and the interest rates on the loans Credco provides to, TRS and other
American Express affiliates. During each monthly period, the discount and interest
rates are determined or adjusted to generate income for Credco that is sufficient
to maintain its minimum fixed charge coverage ratio.
The agreements for the purchase and sale of card receivables (receivables agreements)
between Credco and its affiliates provide that the parties intend the transactions
thereunder be conducted on an arm’s length basis and that, for example,
the price at which receivables are sold to Credco or its subsidiaries be at
fair market value (including consideration of changes in interest rates or significant
changes in collectability). Credco considers its expenses, such as interest
costs, expected credit losses and applicable margin in the calculation of the
discount rate at which Credco offers to purchase receivables to maintain Credco’s
required minimum fixed charge coverage ratio of 1.25. As a result, Credco’s
level of profitability relative to its assets should not be materially negatively
impacted by an increase in either the provisions for losses or the cost of funds.
For additional discussion on the fixed charge coverage ratio, refer to page
23.
Credco funds, either directly or indirectly through its consolidated subsidiaries,
Card Member receivables and loans primarily in one or more of the following
ways:
purchases, without recourse, of Card Member receivables and loans directly from
issuers of American Express cards (card issuers);
purchases of participation interests from TRS’ securitization program;
unsecured loans provided to affiliates, primarily American Express banking subsidiaries;
and
transfers of receivables with recourse, representing loans provided to affiliates
that are collateralized by the underlying Card Member receivables and loans.
Where Credco purchases Card Member receivables and loans without recourse,
amounts resulting from unauthorized charges (for example, those made with a
lost or stolen card) are excluded from the definition of receivables and loans
under the receivables agreements and are not eligible for purchase by Credco.
If the unauthorized nature of the charge is discovered after purchase by Credco,
the card issuer repurchases the charge from Credco.
Credco generally purchases non-interest-earning Card Member receivables at face
amount less a specified discount, which is determined at the time of purchase
based upon the nature of the receivables. The discount rate applicable to purchases
of new receivables reflects the changes in interest rates and the collectability
of the receivables.
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