American Express Co., which calls its popular travelers checks one of its most profitable products, has long refrained from imposing fees on the banks that it relies on to sell them - and protested suggestions that it did otherwise.
For some community bankers, however, the story is a bit more complicated. Indeed, hundreds of banks started getting letters a year ago from American Express - letters in which the company said it would institute fees for selling its travelers checks because costs associated with the business had risen.
Bankers who received the letter were given an ultimatum: Start paying fees or get dropped from American Express' list of sellers. Bob Baughn, the executive vice president of Scott Valley Bank in Yreka, Calif., received such a letter last month in which American Express demanded either a $2,000 annual payment or 43 cents per $100 of checks sold. His bank sells around $400,000 worth of checks each year.
The exchange is not so unlike some of the conversations bankers are having with customers whose relationships cost banks money. American Express says letters were sent to unprofitable customers and said profitable customers will continue to get the checks free. One example: A deal signed last year with Citigroup Inc. to provide private-label travelers checks. Citi will get its checks free, the American Express spokeswoman said.
Still, Mr. Baughn said he was unimpressed with the offering and offended by the letter. "I would feel better if they just told us, 'We can't afford to have unprofitable customers, and we would love to have you issue checks if you pay a fee,' " he said. "We do that to customers all the time, but we send a straightforward letter."
A copy of one letter provided to American Banker read in part: "The Travelers Cheque products American Express provides to your institution have real costs. Until now we've been able to absorb these expenditures for our business partners but, as our costs have escalated, we've been forced to reevaluate this long-standing practice." The upshot of the letter: "We will have to pass these costs along to you." The letter was signed by Rocco Laterzo, the general manager of Amex's North America travelers checks group.
An American Express spokeswoman called the charges fair. "If you look at the industry standard, we saw all of our competitors are charging fees to our smaller sellers," she said. "We resisted imposing fees."
Last Monday, American Banker ran an article based on an interview with Valerie Soranno Keating, the recently named president of the travelers checks operation. The report said Amex did charge fees to banks to sell travelers checks; American Express demanded a correction, which ran two days later.
That correction unleashed its own torrent of protest, this time from community banks who were already seething over the letters.
Dan Clancy, the director of services at the Independent Community Bankers of America, said he started getting angry phone calls from community bankers as soon as the letters began arriving. He said most small banks cannot afford the fees. "If you look at it from the small-bank standpoint, most of them are not selling large volumes of travelers checks; they offer it because they have always offered it," Mr. Clancy said.
The ICBA, which is based in Washington, offers its members Visa travelers checks through a vendor partnership. Once the American Express letters began going out, bankers switched to Visa in droves, Mr. Clancy said, putting at several hundred the number of the 2,500 banks in the ICBA Visa travelers check program that have enrolled within the last year.
The Visa/ICBA program is 20 years old. "It is a very mature industry, and so it is unlikely they would have signed up without having changed" from another provider, he said.
Mr. Clancy said that, judging from the phone calls he received, it appears American Express sent out the letters in several waves, a few months apart. He said overall travelers check volumes were declining and that profits from float were shrinking in light of low interest rates.
Community banks say they sell the travelers checks at little or no profit, as a convenience for customers. American Express says it makes a tidy profit on the float it receives when cautious travelers buy the checks weeks in advance of their trips, sometimes holding leftover checks for months to use on another trip or for emergencies instead of cashing them in.
Last month, Amex chief executive Kenneth Chenault called the checks a high-profit item that provided capital funding for growth in other areas, such as lending products.
The letter supplied to American Banke offered its recipient two options. One was to pay $1,000 a year for a "Seller Support and Servicing Program" that included the right for the bank to place a link on its Web page that would lead surfers to the American Express travelers checks Web site. It also offered travel-tips brochures that bankers could hand out to buyers of travelers checks, and a few other features.
The alternative was to pay American Express a 0.5% fee on travelers checks it sold, payable quarterly.
An added kicker came in the postscript, which warned bankers receiving the letter that the onus was on them to contact American Express with their decision. If they didn't send in a signed contract within two months, "we'll have to assume that you've chosen to discontinue selling American Express Travelers Cheque products and begin the process of removing you from our Seller list."
John Harper, the senior vice president of Potomac Valley Bank in Petersburg, W.Va., said his bank, which sold only $10,000 to $15,000 in travelers checks a year, couldn't justify paying $1,000 for the privilege. "Small banks just don't have that much volume," he said. "We didn't think it was reasonable. I can't imagine anyone doing it."
Sue Toreson, the operations officer of Gunnison Bank and Trust Co. of Gunnison, Colo., said she heard about the Amex letter late last year but became concerned because she had not received one. So she called her American Express contact.
"They said they were sending it out to some banks, and they said eventually I would get one," she said. "They were very vague. It was like they were picking and choosing."
Ms. Toreson said her bank decided not to wait around for the inevitable.
"We felt we would be forced to change, so we switched to ICBA," she said. She added that her bank had sold less than $100,000 a year in travelers checks.
