CHESSNOID

I have blogged about my experiences with American Express and their systematic reductions in my credit lines.  Those actions then reduced my FICO scores in the ensuing months.  If I had to do it all over again, I think I would have just canceled the cards immediately. If I had known what they were doing before they reduced my limits, then my best move would have been to cancel the cards (so it reports as “closed as consumer’s request”)  which would have locked in the higher credit limit on the credit report.

Canceling a card with a good history will impact your credit, but being at 99-100% utilization of your credit line overnight is actually worse.  You could always pay the cards down, but in my case Amex decided to start chasing the balance.  I pay them $500, then they reduce my credit limit down by $500.

I can tell by the searches done and the hundreds of comments I have received on my previous Amex posts that I wasn’t singled out and that this happened to many other loyal customers.  People became so mad that they canceled their cards and wanted to sue them because of the negative impact on their credit scores.  I could relate but I didn’t have the same anger these people had.  It is probably because my background is in the finance field and can see it from the creditor side.

American Express along with the other credit card issuers were simply trying to keep their head above water.  It is obvious now they must have been on the brink of bankruptcy.  They took immediate and drastic actions regardless of the customer reactions.  What is impressive is they knew this before the recession started because my credit limits were decreased about a year ago when I first blogged about it.

Since my credit limit decreases, American Express has laid off employees and changed their status to a Federal Bank so they could get their tainted hands on some of the Fraud Bailout money.  Reuters:

Reuters reported that American Express Company received preliminary approval to get $3.39 billion under the government’s $700 billion financial bailout program. American Express said that in exchange for the TARP funds it would sell preferred stock and warrants to the U.S. Treasury. The preferred shares will pay dividends at a rate of 5% annually for the first five years and thereafter 9% annually.

They have tried to define high risks by the zip code you live in, the merchants you shop at, and the field you work in.  Any flag would encourage them to reduce your limit or cancel your card altogether.  Of course, if you called to find out why these actions were taken against you, Amex would hide behind false generalities about changes on your credit, your credit score, and/or  your overall financial picture.  They even would ask some of their customers for 2 years taxes to do a financial review as if you were buying a house from them (with no real intentions of reinstating your credit line). My theory now on that “financial review” is just paperwork for their collections department to locate your assets just in case you default on their account in the future .

I think they could have made a better decision just by being up front and saying the recession has hurt them too and they need to adjust credit lines or close cards accordingly, instead of infuriating a loyal customer base that have vowed never to do business with them in any way.

Many people want to start a class action lawsuit.  I would definitely want to join, but I don’t think Amex or the other credit card companies have violated any laws.  When these companies grant credit, it is always at their discretion.  These creditors don’t own the credit scoring or credit reporting agencies, so even if they hurt your credit score I don’t think their is any law that holds them truly accountable.  The next challenge is proving damages.  Even though your credit score is reduced dramatically, what financial damages have you actually incurred.  Maybe if you were refinancing your mortgage or purchasing a house or car, you could argue and possibly prove that you were forced to pay a higher rate.

If Amex or any other credit card company did lose in a class action lawsuit, my guess the most they would be forced to pay out is refund of annual fees paid or vouchers of credit for whatever other services they offer.  Most of these credit card companies are also underwater and losing money every quarter now.  Will they even be around by the time the court case ends?   I am no lawyer but this is just the way I see it.