24 Feb American Express Tries Bribing Customers
American Express wants you to go away. And it’s willing to put its money where its mouth is.
American Express is cutting customers off all over the place lately. Either closing their accounts or cutting available credit lines. In the current environment with financial services companies (lenders) trying to hang onto cash and build up reserves to weather the on-going recession, cutting credit lines helps reduce the need for reserves. And cutting new lending, while really horrible for the overall economy, could be good for the individual lender.
But it’s really embarrassing when you recently converted to a bank holding company and grabbed up more than $3 billion in federal money to help keep you afloat. And it gets even more embarrassing if the popular new President is pressing banks that took federal bailouts to start lending more to the public.
So how do you get rid of customers without getting more bad press? Pay them to go away!
Reuters is reporting that American Express is testing an offer to some of its customers: Close your accounts within the next couple months and we’ll give you $300. Although not discussed directly in the media, the implication is the customer would pay off any balance immediately. But not necessarily. The customer could continue to pay the balance as previously agreed and simply give up the option of using further credit. Either option works well for American Express since it decreases potential losses from those customers in the future while allowing them to set aside fewer dollars in reserves for the unused credit lines available to those customers.
One must imagine that American Express figured people would much prefer getting a small 9completely legal) bribe to go away than being cut off arbitrarily, as had been their prior practice. And obviously they’re right, particularly since they retain the right to cut you off in any event in most or all of their contracts. So, in reality, what they’re saying is, “We can get rid of you for free or we can get rid of you and give you $300, which do you prefer?”
Amex isn’t discussing which types of customers received these offers. My guess would be they are bribing customers they may want back someday. For example, a customer with reliable but not spectacular income, several available forms of credit and a good credit score, may be a great borrower for Amex in the future. But right now, Amex may be willing to bet they would take $300 to go away, since they can get by with their other credit options. The higher-end business user may have other credit but they often charge so much routinely that Amex wants to keep them happy and running up fees, plus $300 isn’t going to compensate for that user’s potential loss of convenience. And Amex wouldn’t normally want to alienate the high-end customers by just cutting them off. The lower-end consumers may not matter as much to Amex and may simply be kicked out of the club without the tip.
As a consumer advocate, I’m not a big fan of credit cards. I am a big fan of consumers getting paid when something is taken away from them, whether it’s a home, peace of mind or simply some of their credit. And, after all, your credit score can take a hit if you give up unused credit lines like your American Express card.
But, as a consumer advocate, I’ve learned to never assume large lenders do anything out of the generosity of their hearts. So I am awaiting news of whether these offers come with any other hooks. For example, does the customer give up any right to sue Amex if she later discovers a problem? Or to join a class action against Amex for something improper. Or any of a myriad other rights the customer may have but not realize were violated for some reason.
I hope I’m just jaded and Amex is really trying to do something for customers in return for cutting off their potential credit lifelines. If so, then Amex is probably planning for a life after this recession, which is more than most of the financial service industry right now.
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