American Express Controversy!

Lately when I speak at meetings with the general public or Mortgage Professionals when I mention Amex eyes widen and heads begin to nod. So many people over the last year and especially last few months have had varying negative experiences that left them shocked and confused. I have written a bit about this topic in the past but the need for deeper understanding seems to be great. 

 

In September of 2008 it came to light that many Amex Card Holders were experiencing limit reductions due to “Behavioral Scoring”. “Behavioral Scoring” is when your creditor analyzes the stores you have been shopping at, purchases you have made, and the Lenders who hold your mortgage. If they see that other consumers with similar creditors and lenders have payment patterns that are negative or ended in default Amex would assume the same could happen to you. You would be labeled a risk and a reduction to your limit occurs. A letter was sent to one cardholder explaining the reasons why Amex made the decision to cut his limit. Below is what was described:

 

 

 ”Our credit experience with customers who have made purchases at establishments where you have recently used your card.”

 

 

 ”Our analysis of the credit risk associated with customers who have residential loans from the creditor(s) indicated in your credit report.”

 

 

American Express was asked to explain these decisions. Kim Forde, a spokeswoman at Amex, confirmed that the company was studying its exposure to risk more specifically reviewing its cardholders’ credit profiles, including issues it has always considered from past payment history to credit reports and income. She also said “We are looking at some other factors, too, in light of the economy. We are looking at consumers holding subprime mortgages (and) those living in areas where there has been a greater deterioration in home prices.” Amex made it clear that these are some of many reasons that limits are reduced.

 

In the last 8 months the practice of closing accounts and reducing limits has escalated to the norm and Amex is the leader of the pack. We started seeing wealthy clients with large Amex limits, who carried high balances, getting their limits cut when paying off or down their open debt. These consumers had never had any late payments in their credit history. This started to become a pattern and we were advising consumers in this situation not to pay the balance down unless they were willing to lose the use of this credit. Amex, who now has been using a different tactic to evaluate risk levels is waiting for the right moment (when balances are low) to swoop in and cut your limits.

 

In the past month we have noticed consumers with small limits getting their balances cut as soon as payment is made. The credit card companies have taken major losses on bad debt in 2008 and many currently.

Amex, although in the industry they are considered to have low amounts of charge offs, is trying to change some of the bad underwriting decisions that got them into short term losses. Therefore Amex and many creditors are looking at all of us through microscopic lenses for a sign of future losses. They would rather cut more and lose less no matter the expense to the general public.

 

If your ratio of balance to limit is high on most credit cards, even though you have never been late, and have a mortgage with a subprime lender, have been shopping at discount stores you may find your limit cut as well. These are tough times and the creditors are panicking. With all this info try to look at your credit the way your creditors do and follow a pattern you think fits in to what they would feel secure with. When this passes you can use your credit with less concern about being judged but for now, if you want to keep it, take control and be aggressive about protecting it. 

 

Copyright ©2009 North Shore Advisory Inc. 

 



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