AmEx Offer: The Impact on Credit Card Companies

Here is a sweet deal if you qualify. American Express is offering to pay some cardholders $300 each to close their account. It sounds strange, but it will allow the lender to reduce their risk of defaults. The company sends the card to the customer after the balance is paid off by April 30th. The offer comes in a prepaid credit card that can be used anywhere AmEx is accepted. It is not known the exact parameters for the offer but it is assumed that it went to the customers that hold multiple cards. American Express is the largest U.S. credit-card company with purchases so they are probably trying to get paid off before other lenders. What industry insiders are watching is to see how the AmEx offer impacts other companies.

AmEx Credit Card Debt

Consumers are falling behind on credit-card payments. U.S. unemployment reached 7.6 percent last month which is the highest rate since 1992. Bloomberg's Hugh Son says that Brian Foran, an analyst at Goldman Sachs Group Inc., stresses the industry defaults are set to break records. Because of this, American Express could reduce their annual profit by 40 percent. So getting paid ahead of other companies is a huge incentive. According to Don Mecoy of The Oklahoman, AmEx spokeswoman Molly Faust stated, this is an offer made to select cardholders to help them pay down their balance.

AmEx rivals are reducing credit lines, raising interest rates and closing inactive accounts to brace for future losses. It is conceivable some of them will follow in the AmEx footsteps. It is crucial at this time to be sure to read your monthly statement. Changes are likely to take place as customers default on their credit card companies.

American Express loans rose to 8.29 percent in January while it was 7 percent in December. Their account payments that are at least 30 days overdue climbed to 5.28 percent. American Express received $3.39 billion from the US Treasury but profit fell 72 percent as more consumers defaulted. The company claims that for the past two years they had a faster loan growth rate than their competitors. And AmEx invested heavily in the housing market these past two years.

Although the $300 offer has ended, industry leaders are watching what happens with American Express through the promotion. The closing date on the AmEx offer is interesting because it looks timed so customers can take advantage of tax returns to pay off their balance. AmEx customers could also turn the balances over to another company so watch for the impact this also makes on the market. Many industry insiders believe other companies will start making similar offers.

AmEx Offer: Impact on You & How to Protect Your Credit

Because AmEx has jumped ahead of the rest of the credit card companies, it is likely your company will make changes to try to keep up. To protect your credit, the rule of thumb is to keep your credit above the 30 percent mark and don't spend over 30 percent of your credit on any one card. Read your statement every month. Changes can happen without notice. Watch for my article on the new trends the companies have established in analyzing your account. They may not be what you might expect them to be.

Although industry insiders consider the new trends arbitrary, they concede the credit card companies have the right to protect themselves. By learning the trends, you might be able to further protect your credit. With AmEx making waves to get at the front of the line before defaults soar, watch for your company to make changes as well. AmEx is the largest U.S. credit card company so any changes they make are likely to impact the whole market.

Sources:
The Oklahoman, Don Mecoy
http://www.bloomberg.com/apps/news?pid=20601087&sid=awn.v.OUJjkE&refer=home, Hugh Son