Basically, here’s the first line of the article:
American Express is offering a $300 promotion to a limited number of U.S. card holders who pay off their entire balances and close their accounts.
Here’s the link:
http://www.morereturns.com/american-express-paying-300-cardholders-closing-account/
Is this just Amex using its customers like a bank?
Weird. I couldn’t say whether it makes sense unless I knew what kind of cardholders were being targeted by the promotion. Ones likely to default? Ones with large balances but also high income or assets, who could pay them off?
Yeah, weird.
I can only imagine this would make sense with customers who routinely run up $10K+ balances, perhaps balances well above that.
Actually, makes no sense at all.
Why not just cancel my account and make me pay it all back, period?
Here’s the Consumer Reports take on this. It is limited to “certain customers who carry a balance and use their cards only infrequently.”
The way I heard it, AMEX wants to get rid of their less desirable customers – which in their terms means the customers that don’t use the card very much and/or have less than stellar credit.
Rather than having the potential negative publicity and a possible consumer uproar about canceling the cards, they decided to avoid all of that by paying the card holders to close their accounts. I’m sure they believe this will cost them less in the long run.
Also, I heard that this offer is only being made to certain customers.
J.
Because I don’t think they could legally do that, demand customers pay their balance immediately.
Shoot. I have an AmEx card I never use. Unfortunately, I don’t carry a balance, so it doesn’t look like I qualify for this. Otherwise I’d be all over it.
No one said immediately, but if the account is canceled all they have to do is make sure the minimum is more then the interest each month and the account will eventually be paid down.
If you qualify they will notify you by mail.
Yet another sign that the U.S. economy has gone through the Looking Glass.
Oh, good point.
You can stop letting me charge, but if I did minimum payments I’d still be some risk to you for the next half decade or so.
I would have thought the undesirable customers are those who use the card regularly, but always pay up each month (and therefore never pay interest)?
They’re probably trying to clean up their balance sheet by improving the quality of the debts their cardholders owe to them to avoid larger write-downs later. My guess is they’ve identified a subgroup of people they’re relatively certain won’t be able to pay off a $5,000-$10,000 debt in 9 months time, but just might be able to do it now and they’re providing an incentive of $300 for them to do so if they’re able. Look at it another way: they’re just trying to be the first (lightly scathed) creditor off of tons of sinking ships (the debtors they’ve somehow identified as being unlikely to pay things off in the future.
Improving the quality of their credits to people might make the company look healthier, afford them access to cheaper money in financial markets to whatever extent the “credit crunch” is still going on, etc.
There are two main ways a credit card issuer makes money - finance charges/penalties, and a (small) percent of a sale charged to the merchant. If you use the card but pay it off, they make enough off the merchants to make it worth keeping your account open. And hey, you have a chance to miss a payment every month!
They also may be doing this because it looks like the bankruptcy rules may be revised in the near future to let judges modify mortgage terms. If that happens, there will be increased incentive for many people to go through a bankruptcy. And who comes out the worst in a bankruptcy? Unsecured creditors.
Maybe things have changed, but it used to be that AMEX were charge cards, not credit cards. The difference is that the entire balance is payable every month. So yes, they could close your account and demans immediate payment at any time.
Things have changed.
Amex Blue, which has been around since at least 2002, lets you revolve a balance.
I heard about this from a finance guy.
When American Express has you as a client, you have a credit limit of, say, $10,000. AE has to have holdings that equate to that $10,000 in order to cover you if you choose to buy something to your limit.
Since their financial positions are currently low, they don’t have the assets to cover the credit limits of all their users. By selling off ~1000 users at the $10,000 limit, they free up $10,000,000 of responsiblity, and can use those holdings to cover OTHER users.
It makes sense.
According to the Woman Who Knows Stuff on NPR about an hour ago, you’ve got two months to pay the balance off and get the $300, at which point the account will be closed. Her speculation was that this was timed very specifically to coincide with tax refund time - AMEX essentially saying, “Hey, if you’re going to pay down your credit card debt with your tax refund, send it to us instead of Visa!”
You get $300, they get some “risky” debtors to close their accounts and pay them off - it’s win-win.
Frankly, I prefer it to the assholes at Some Other Bank Which Shall Not Be Named (but had at least one Pit thread devoted to them) who just jacked up our interest rate for absolutely no reason that they’d give us.
The Woman Who Knows Stuff also mentioned that some credit card companies are now lowering limits, and then smart customers are paying extra payments to get themselves well under the new limit (being near your limit is hell on your credit score), only to find the companies again lowering their limits to near the new, lower balance. Lather, rinse repeat. She said that some people, following the old advice of “call 'em up and have a nice chat; ask if there’s anything they can do about it”, found that the act of calling to ask why your credit limit was lowered or interest rate raised itself triggered another lowering of the credit limit!
The rules have changed, friends.
An internal AMEX document has been leaked detailing the program and what AMEX customers reps are supposed to say to customers asking about the “Balance Down Initiative.”