AmEx paying card holders to close their accounts

[Sapiens]

http://finance.yahoo.com/news/AmEx-p...-14442536.html

NEW YORK (Reuters) - American Express Co (NYSE:AXP - News), battered by mounting credit card losses, is offering $300 to a limited number of U.S. card holders who pay off their balances and close their accounts, the company said on Monday.

"We sent the offer out to a select number of card members," said Molly Faust, a company spokeswoman. "We are looking at different ways that we can manage credit risk based on the costumers overall credit profile."

The company did not say how many card holders would receive the offer and did not disclose the total of their card balances.

...

This is pretty bad news really, this request by Amex is like a doctor telling a patient that has almost bled to death that he needs to be bled some more...

Credit is money, and cardholders by paying off their debts are taking out monetary units out of circulation... This is pretty bad indeed!

Wow!

[mfyahya]

Re: AmEx paying card holders to close their accounts

Credit is money, and cardholders by paying off their debts are taking out monetary units out of circulation... This is pretty bad indeed!
Wow!

I doubt this will have much effect on money in circulation. How many people can afford to pay back their card debts? They may transfer balances from another card though, especially if the transfer fees are below the $300 Amex is paying them.

[kelton56]

Re: AmEx paying card holders to close their accounts

Surprise! Cardholders getting letters will those "deadbeats" who pay their balances every month, thus using AmEx's money for 20-50 days free of charge, except for the annual fee, of course.

This is similar to something Citi did last year, closing more than 100,000 cardholder accounts because they refused to carry large, high-interest balances or make late payments or go over limit. The nerve.

The question is...how will the closure be reported to the credit reporting agencies, since we know if a debt-slave voluntarily closes a revolving credit account, it LOWERS his or her FICO score.

The objective of credit card issuers is to create and maintain debt-slaves for life, and hopefully have the opportunity to jack their card rates up north of 25% every once in a while.

You can bet the AmEx $300-offer letter recipients will have FICOs north of 750.

[don]

Re: AmEx paying card holders to close their accounts

My personal plastic debt slave is a GMMC :eek:

I generally run a monthly balance of between $800 and $2,500. Occasionally I'll shoot up to the $4-6k range.

I have never paid a penny in interest or annual fee and have a maxed out GM car purchase credit :rolleyes:

I think my daze may be numb'erd

[Sapiens]

Re: AmEx paying card holders to close their accounts

I doubt this will have much effect on money in circulation. How many people can afford to pay back their card debts? They may transfer balances from another card though, especially if the transfer fees are below the $300 Amex is paying them.

Think about the consequences of this action though... They should be making loans, not shutting them down.

[goadam1]

Re: AmEx paying card holders to close their accounts

I have a high credit line with Amex and I pay off the bill every month. I'll let you know. I doubt they will give me the axe. You are forgetting the fees they charge vendors on my charges.

[Chomsky]

Re: AmEx paying card holders to close their accounts

They can't make more loans, because credit-card securitization is dead. There's no shadow-bank debt apparatus behind credit cards anymore. AmEx extended its customer base with that apparatus as a given, and now that's it's gone they are overextended and exposed to borrower risk. Now they are offering to reduce what certain cardholders owe by $300 if the cardholders agree to pay off their debt and close the account -- to make sure AmEx is at the front of the line in getting repaid, before cardholders go bankrupt. Seems like a smart business decision to me.

[cjppjc]

Re: AmEx paying card holders to close their accounts

My personal plastic debt slave is a GMMC :eek:

I generally run a monthly balance of between $800 and $2,500. Occasionally I'll shoot up to the $4-6k range.

I have never paid a penny in interest or annual fee and have a maxed out GM car purchase credit :rolleyes:

I think my daze may be numb'erd

Wow. I want to party with you.;)

[bobola]

Re: AmEx paying card holders to close their accounts

Interesting story.

Last Saturday I was shopping at Costco and signed up for another AmEx card, and will dump the other one..

The offer; no annual fees and up to 5% off on Costco gas for business owners, which I am.

I asked how AmEx would make money on this Costco/AmEx card.

Answer; "They hope you carry a balance".

Wow.....at 27% interest I don't think so.

Having carried a credit card balance just one month in all the years I have had them, looks like I am going to stay on the 'deadbeat' list...

[Sapiens]

Re: AmEx paying card holders to close their accounts

They can't make more loans, because credit-card securitization is dead. There's no shadow-bank debt apparatus behind credit cards anymore. AmEx extended its customer base with that apparatus as a given, and now that's it's gone they are overextended and exposed to borrower risk.

Bingo! Now, what do you think that means for asset prices?

[antiserf]

Re: AmEx paying card holders to close their accounts

Now they are offering to reduce what certain cardholders owe by $300 if the cardholders agree to pay off their debt and close the account -- to make sure AmEx is at the front of the line in getting repaid, before cardholders go bankrupt. Seems like a smart business decision to me.

Excellent analysis. This (TARP empowered!) beggar-thy-neighbor strategy has some inherent limitations, however. What if Citi, Chase, and BA do the same thing? What if AmEx's assets include the securitized mortgage of the cardholder?

[Chomsky]

Re: AmEx paying card holders to close their accounts

Excellent analysis. This (TARP empowered!) beggar-thy-neighbor strategy has some inherent limitations, however. What if Citi, Chase, and BA do the same thing? What if AmEx's assets include the securitized mortgage of the cardholder?

They should and likely will pursue similar strategies -- every one of them is overextended in this new, securitization-free paradigm.

And Sapiens, to follow your lead, what happens to assets is they get pummeled. It's just like the "savings paradox" for individuals in a time of economic contraction. Parties like AmEx act rationally by curtailing their credit exposure, but if every creditor does the same thing, the economic contraction is accelerated and made considerably worse.

BTW, today's statement by Bernanke that the economy is experiencing a "severe contraction" made me think: too much pitocin?

[goadam1]

Re: AmEx paying card holders to close their accounts

Maybe they will make debt-serf work camps to pay off debt.

[Chomsky]

Re: AmEx paying card holders to close their accounts

Maybe they will make debt-serf work camps to pay off debt.

I LOVE IT!! In exchange for the government canceling your AmEx debt, you get to work as a telephone operator in AmEx's collections department, thereby obviating the need for Indian labor! Win-win!

[metalman]

Re: AmEx paying card holders to close their accounts

I LOVE IT!! In exchange for the government canceling your AmEx debt, you get to work as a telephone operator in AmEx's collections department, thereby obviating the need for Indian labor! Win-win!

oh, how soon we all forget...

down the memory hole it goes.