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April 13, 2007

The Inside Scoop on Credit Card Lending at American Express

posted by MR WAVETHEORY at 4/13/2007 09:14:00 AM
I've been a customer of American Express for years and each year, I use my American Express card for everything from coffee, travel, business expenses and everything else under the sun. I would consider my spending with them to be in the top percentile of their customers. As a result, I decided to try out some of their new products and boy was I surprised to learn how the organization was setup at American Express Company (NYSE AXP) and learned first hand why America is having such a big problem with subprime lenders like New Century Financial Corporation (REIT) (Nasdaq NEWC), Fremont General Corporation (NYSE FMT), and Accredited Home Lenders Holding Co. (Nasdaq LEND), and even Citigroup Inc. (NYSE C)

I was looking around for cheap credit - read "0% card offers" - on the American Express website and I saw a few ads for OPEN their Small Business credit card and applied for it. I also applied for a few other cards that offered 0% as well including their Blue Cash and Blue Reward cards just for kicks. Since it was all the same form, it took about 15 minutes to apply for the cards. Done. I really think they have done a terrific job with the customer acquisition process at American Express.

It was easy to get OPEN
I got approved for the OPEN Small Business card immediately. The Blue Cash and Blue Reward cards took 2 weeks, but I got approved as well.

Total combined credit: $XX,XXX (I'll say it was high $XX,XXX)

The letter arrived in the mail with my credit cards. I left them sitting on my desk for a few days and then I decided to start using them. After all, what could be better than 0% interest for 1 year? I have better places to park my money!

So, I used the Blue Cash card and used up about half of the credit. That was fun and easy.

The CALL
Then, came the call. I won't name the person who called but I was just refer to that person as Mr. X (this does not necessarily mean it was a man or a woman or for that matter the person's last name began with an X). Mr. X left a nastygram - if you're a techie, you know what I mean. The point of the message was that American Express wanted to talk to me immediately about my credit cards. Fair enough.

I returned the call and Mr. X started asking me why I applied for so many credit cards. ($XX,XXX is alot?) Anyway, I told them I liked the 0% deals and that they were terrific offers from American Express which was a brand I trusted and admired. Mr. X started pressing me for my financial information like my income, my earnings this year, and told me that I would have to submit my tax information to them in order to keep my new cards. They asked me to submit and sign IRS Form 4506T. If you don't know what that form is, it basically discloses all your tax information to the requester of the form. The privacy implications!? I was not happy about that, so I told Mr. X that they could cancel all the new cards if they wanted to.

Mr. X told me that that was not possible and so I told Mr. X that they could reduce the credit limit on my old Amex cards and put them on the new cards with 0% interest. Fair enough right? After all, if they were considering me a credit risk, then keeping my credit line the same would just do the trick right? Mr. X said that he would look into it and decided that they would still have to cancel 2 of the new cards but agreed that was OK as long as they could reduce the credit on the one remaining card. So, done. Right?

Not so fast. After I thought this little episode of histrionics was about to be over, Mr. X decided that Mr. X wanted to see my Form 4506T after all - and get my entire tax return for the previous year. Why I don't know. I had never missed a payment with AMEX and so I was surprised why last year's tax return would be so important to them, so I asked Mr. X why AMEX needed the return since I had paid all my bills in time and in full. Mr. X stalled and just said they needed the return. I told them that was not reasonable. Mr. X then went back on his word and told me that instead of cancelling two of the new cards, they would cancel all of the new cards as well as my old cards!

The whole episode was a great example about how the right hand and the left hand don't know each other at American Express. The guys and gals giving the credit and the boys limiting the credit clearly have a disfunctional relationship. You can only imagine how much the marketing guys want to grant credit and how much the credit department wants to limit credit.

Why We Will See A Tough Credit Market
I think the whole episode shows how much of a problem easy credit has become in America and its symptomatic of the subprime loan crisis we hear about every day. I could see the same episode being played over in mortgage loan offices nationwide and subprime credit card marketing departments at the largest banks in America.

Give 'em the credit easy and fast. Take it away even faster. It was a hassle to deal with Amex. The people at the call centers are clearly unqualified to make any sort of decision. To give you an example, let's say I am a customer of AMEX and I have credit of say hypothetical $100. AMEX issues me more credit for $100. Total credit $200. Now, if AMEX didn't want to give me the additional credit, then they should have not given me the $100 additional credit in the first place.

That's not how it works. AMEX would give you the $100 credit on top of the existing $100 and then call you and say we didn't mean to give you the $100 credit. Then, they would tell you, not only do we not want to give you the $100 credit, we didn't want to give you your existing $100 credit in the first place - "even though you have been a great user of credit and have never paid late." How dysfunctional is that?

I no longer use my American Express card, because it became too much of a hassle. But I think the lesson learned hear for American regulators in the banking industry is that there is a problem with credit card lenders, and the problem is even worst with the mortgage companies.

Lenders Are Creating Their Own Crisis and The Mortgage Version of American Express
In a way, lenders like American Express and even mortgage lenders have created their own credit crisis. Imagine you are a mortgage lender like New Century Financial and you got skittish on your lending, so you take back the credit that you have given, like American Express decided to take back my credit line for no good reason. In the world of lending, I am triple AAA credit.

What does that do to the liquidity of the financial system? Quite simply, it creates a crisis of confidence because nobody wants to lend anymore - even to their top and prime customers who have terrific credit histories.
America, American Express on the Brink of a Crisis?
I think America may be on the brink of a liquidity crisis because lenders are getting scared. When New Century goes under and Fremont follows and LEND falls apart, nobody wants to lend and extend credit, even to their biggest and best customers. Think Japan of a decade ago - low cheap rate loans over the past 10 years, yet the economy has stagnated because lenders haven't wanted to lend. Think America during the Great Depression. God forbid America today.

I think American regulators have a duty to keep liquidity flowing the financial system and that means fixing this kind of knee jerk behavior in the financial industry. I hope they do it, because if they don't, capital will be flowing very fast out of this country!

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11 Comments:

Blogger Taylor A said...

Just had the same thing happen to me. Nearly identical. American express keeps sending me cards and increasing my credit line. I really liked them and thought they were happy with me (never missed a payment)

Just got a call and had a form faxed over. 4506T. I think I am going to tell them to go F*** themselves, hard. 0% is great, but this is not a home loan here and I don't see why they want this information after the fact. Its really just a matter of principle.

Out of curiosity, how did you whole deal work out?

5:08 PM  
Blogger Zlatin said...

Same think happen to me too.
I had several business and personal cards with American Express and they closed them all, just because they did not received confirmation from IRS that I have filed my taxes for last year.

5:12 AM  
Blogger marrin said...

same think happand to me this morning ,i received a phone call from "out of area"and a female voice on saying that all my 5 accounts withs Amex cards are suspended until they will recevive sign the form 4506T.
i asked why? because i was payng my bills and i only used one card ,all the other 4 cards i didn't use at all they just charged me member ship anualy fees so i got nervous and i asked the lady the same think"is this a way of doing business here in USA amex give you the cards and after 8 month they call you to give the your taxes for the previous year...this is a way to terrorize the amex card holders for no reason the customers did in the first place "amex acts like investigators for their own interes not for their customers"
i think the same ,amex is the number one credit creating problems for USA citizens ...i don't talk about ther customers from outside the USA...it's terible .
i don't undestand how our goverment don't take Amex way of doing busines here in USA seriously about destroing our USA financialy by using this king of 4506t forms..maybe the amex business is part of irs business!?
to get back on subject...i told the lady from amex that i will not send any f....g!4506t form to them and they could cancel "close"all my amex accounts and america will be in more financial problems because of amex way of manipulating business .
and one more think "American Express "..stays for their name by.. Destroing America Financialy ...Express" gives with one hand and takes back with two hands!

10:54 PM  
Blogger braham said...

same thing happened to me, spent around half a million and not once payed a late payment, so i'm going to till them to shove it. this country has fallen hard, where all a bunch of garbage to them, they seem so friendly when spoken to. but its just big brother and the masonic party. they wont way to much information about everyone.
oh what happened to the membership points or skymiles.

3:54 PM  
Blogger Debra M said...

Debra M.
My husband and I have been card members for 35 years. My current bonus points are over 250,000. That should tell you how much money we spend on AMEX. I received a call Monday and was told very abruptly that if I did not send in a signed IRS form 4506T immediately my card would be cancelled. Here is what I have to say to AMEX FU.

2:38 PM  
Blogger Debra M said...

This comment has been removed by the author.

2:38 PM  
Blogger onlinetick said...

Just had the same issues with Amex. I have been a platinum card member for 10 years. spent over $5 million with them over the time. Paid the balance in full every month, and was never late. They cancelled it due to me not wanting to send in permission for them to view my taxes. I have always found when I called in the customer service people are nice and helpful, but when they call you, they are rude and not customer friendly. No explanation for why they needed the info all of a sudden.

1:55 PM  
Blogger onlinetick said...

This comment has been removed by the author.

1:56 PM  
Blogger bpgarci said...

I just have the same thing happen to me. And all I can say is AMEX go Fu... themselves

12:50 PM  
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4:43 PM  

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