American Express Offers Some $300 to Close Credit Card Account
Feb 28th, 2009 | By Rob | Category: featured
Credit card companies have no doubt spent billions of dollars on advertising in order to get their credit card in a consumer’s wallet or purse. As a result, they have collected billions of dollars in payments from consumers on credit card balances and debt.
Surprisingly, one credit card company decided to return some of that money to its cardholders this week. Only this time, rather than cash back rebates, frequent flier miles, or a no interest balance transfer to increase their use of plastic, they did so to get them to stop reaching for their credit card of choice.
Select American Express credit card holders will receive $300 to pay off the remaining balance on their American Express card by April 30th and close their account. The offer for high risk borrowers required them to enroll by February 28th to be eligible for the money.
It’s the latest program from a credit card company to encourage debtors they deem a credit risk to pay down their debt. Citigroup at one point matched payments from select debtors to encourage them to decrease their debt and accept a lower credit limit. And I believe most banks have some form of a partial debt forgiveness program currently for customers who have fallen behind on their debt payments.
Offers such as the one by American Express and Citigroup are increasingly popular as banks fight to minimize the amount of credit they have extended to individuals who they believe may eventually need to file bankruptcy. Financial institutions have found that they aren’t recovering much on credit card debt through bankruptcy since credit card debt is unsecured and liabilities generally exceed the assets of those in bankruptcy by a wide margin. Because they are unlikely to recover much in bankruptcy, they are positioning themselves to get paid as much as they can prior to the bankruptcy filing.
The offer no doubt also resulted from the challenging credit conditions. Moody’s predicts that the credit card charge-off rate (that’s the percentage of credit card accounts where the debt is deemed uncollectible) could increase from its current high of 7.74% in January 2009 into double digit territory if the unemployment rate continues rising. The January delinqueny rate on credit cards of 5.94% is at its highest level in 17 years. Moody’s says that the record high delinquency rate in January 1992 is likely to be passed in the coming months.
American Express, like other financial institutions, is facing a dropping stock price, difficulty raising capital or securitizing assets, pressure to cut its dividend, and reconsideration of the strength of its own credit by credit rating agency Moody’s.
The wisdom of accepting one of these offers if you receive one depends greatly on the terms. You should carefully consider the potential effect on your credit score, your cash position, and your overall credit before agreeing to pay down your credit card debt and close your account. Closing an old account and decreasing your overall available credit balance can decrease your credit score. Paying off less than you owe can also result in a negative notation on your credit report if reported by your creditor. And you may be giving up access to credit at a lower interest rate only to have to later add debt to a higher interest rate account because you have depleted your cash reserves to pay off the credit card. And if you can’t meet your end of the deal, you may not qualify for the payoff at the end. So consider wisely if the offer of debt forgiveness or payment incentive makes sense for you.
