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Credit Card

05 Oct 2017Economics Essays

On February 25, 2009 in Wall Street Journal Mary Pylon wrote about AmEx asking its customers to close their credit card accounts. As a stimulus, AmEx offered its clients a $300 prepaid gift. Pylon (2009) suggests that "the unusual move underscores how quickly conditions have deteriorated in the credit-card market". While mortgage crisis has become the source of major economic pressures, credit card companies still fight to survive. It should be said, that credit card holders are not given any choice; and if they do not agree to close their accounts by February 28, they will not receive the gift, but their accounts will still be closed. That means that for the customers who have sizeable credits but do not use their credit cards actively, AmEx will offer a gift in exchange for getting rid of them.

Each customer was sent a letter with a code which, if submitted online, automatically cancels the card. If the customers agree to cancel their cooperation with AmEx and to close their accounts, they are not charged additional fees and are subject to the same interest rates. At the same time, for those who are late with payments, AmEx has already increased lateness fines. Moreover, the customers who agree to close their accounts, even voluntarily, damage their credit history. In simple terms, AmEx says "we want you out and we want to entice you financially to get out" (Pylon, 2009), and the more cards the company cancels, the more likely it will to survive the crisis.

I chose this article because getting rid of credit card holders is new to the credit market. That means that companies and bank institutions do not have any other choice, when trying to increase their cash resources. They are no longer interested in customers who have low credit activity. They do not want customers to be late with payments. The crisis leads companies to the situation, when they need to invent new unusual methods to generate profits. With AmEx, closing credit card accounts has become the critical measure. It is very probable, that other credit card companies will take this example in order to survive the crisis, even if these measures damage customers' reputation.

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