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American Express Paying Cardholders To Leave

American Express has just announced that it will pay cardholders $300 – to get lost. That’s right, Amex is actually paying some of their customers to take their business elsewhere. As we wrote in our last update, all credit card companies are now dealing with a huge number of defaults, coupled along with a substantial drop-off in card member spending.

The problem has become so bad in fact, that credit rating firms are now predicting that the charge-off rate will hit double digits by the end of this year. Charge-offs occur when account holders stop paying their credit card bills. The charge-off rate stood at 7.7% last December, a record high.

The American Express approach may not be cheap, but it should prove to be effective. The whole point is to clean out what they deem to be the at-risk account holders. The hope is that the cardholders will pay down their debt and thus no longer leaving Amex exposed to more potential defaults.

While this is a novel approach to protecting the financial services company from adverse risk exposure, it is not unprecedented. Several years ago National City offered a very similar deal. The offer was $200 for customers to close down their home equity lines of credit.

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Here’s How The Offer Works:

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A reportedly ‘small amount’ of Amex cardholders will be offered a $300 pre-paid gift card that will be usable anywhere American Express is accepted. In exchange they agree to pay down their entire balance between March 1st and April 30th.

By agreeing to enroll in the program cardholders credit card accounts will be closed down, regardless if they are successful in paying down their accounts or not. All rewards points will be null and void once the account has been closed.

Customers that will be ‘eligible’ for this offer will be notified by mail. They are presenting this to their customers as a way to ‘simplify your finances’.

As of this writing American Express has 44.2 million credit cards outstanding, including both consumer and small business credit cards.

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