American Express Pays Cardholders $300 to Close Out Accounts

[Purveyor]

By Hugh Son

Feb. 23 (Bloomberg) -- American Express Co., the largest U.S. credit-card company by purchases, is paying some cardholders $300 each to stop being customers as rising defaults threaten profit.

People who got the offer to “simplify” their finances must pay off their entire credit-card balance by April 30, according to New York-based American Express. Enrolling in the program cancels a customer’s account and may lead to forfeiture of reward points or rebates, the company said on its Web site.

“This is an offer we made to select cardmembers to incent them to help pay down their balance,” said Molly Faust, an American Express spokeswoman, in a telephone interview today.

Consumers are falling behind on credit-card payments after U.S. unemployment reached 7.6 percent last month, the highest rate since 1992. The industry’s defaults are set to break records and may reach as high as 11 percent by yearend in a stress scenario, reducing American Express’s annual profit by about 40 percent, according to Brian Foran, an analyst at Goldman Sachs Group Inc. analyst.

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BLOOMBERG: http://www.bloomberg.com/apps/news?pid=20601087&sid=awn.v.OUJjkE&refer=home

[Raven]

1. This will be the next crisis. Credit card debt is unsecured. The

companies can't forclose on your home or repossess your car. For years these companies have been preditory and without mercy. People will, if they have not already, start to walk away from their debt. The worst thing a CC company can do is wreak a credit score but I think that the folks who will be walking away already have scores that are in the toilet.

[ecstatic]

2. so true. My grandmother refi'd from a fixed 5% to an arm to pay

off credit card bills. :mad: My mom and I tried our best to get her not to, but my greedy aunt encouraged her to do it for the cash payout! Needless to say her mortgage has nearly doubled from what it used to be.

[Purveyor]

3. Actually I believe they can convert this unsecured debt into secured debt by

suing the cardholder and obtaining a judgement against that person. Then liens and garnishment can be levied and enforced.

[Warpy]

5. The problem is that there are a lot of renters out there

who used credit cards from vacations to medical bills. There is nothing to take and wages are often too low to garnish. The best they can expect from such people is a token payment every month just to keep money coming in somehow.

[JoDog]

6. Yes, they can sue

in civil courts for what basically amounts to breach of contract. Then the court can garnish your wages (up to 25% of your paycheck in Illinois) or place liens on property until the debt is paid. If a debtor has more than one creditor, then all of them must file a court case and get in line.

People are starting to walk away. Look at how the bankruptcy numbers are jumping. Unsecured consumer debt is the second leading cause of bkr, right behind medical bills. Although I don't consider my bankruptcy to be "walking away". It's more like gnawing my leg off to get out of a trap.

[Mr. Hyde]

4. Good point. What do you have to lose when you've already lost everything?

Nothing; although, I imagine these folks can pretty much plan on never getting another credit card again let alone an American Express card.