So, say you’ve had a good relationship with a credit card company and been paying off substantially more than minimum payment over recent months. You’ve also completely paid off other credit cards in recent months. You then get a notice from the credit card company saying they’re reducing your credit limit, right before Christmas. Would you be more than a little miffed?
Well, I certainly was. The behavior of a certain large company surprised me today as I have always tried to maintain the best possible business relationship with that particular company. On inquiring, we were told that it was primarily because of the fall in the value of our house leading to a less positive debt ratio report from a credit rating agency, and that this could not be challenged because it was company policy.
This is, of course, precisely the sort of generic modeling that led to the credit problems in the first place. By relying more on actuarial models of risk than on an informed judgment based on an established business relationship, at least partly because of governmental concerns about possible bias in the lenders’ decision-making, the credit problems spiraled out of control. If you don’t know who is a risk and who isn’t, you’re reduced to making ill-informed general decisions that affect people on essentially an arbitrary basis (and if that isn’t prejudice, I don’t know what is).
The result? I am suspending my business relationship with that credit card company. Although I won’t mention your name, you have lost a customer. A customer with a record of good payment. Therefore, your reliable income stream will be reduced. You will have less reliable income with which to fund your other activities. And that is a situation that would have been avoided with a more informed approach to risk management.
The credit problem spiraled out of control one way. It could easily spiral out of control the other, if this is anything to go by. Companies reducing credit availability to those who can repay is one way to increase the general liquidity crisis at an individual household level.
Meanwhile, the United Kingdom has just increased its credit limit to about a trillion dollars. And credit card issuers are queuing up for a bung from the American taxpayer. Because, after all, getting tax money from politicos on a “you scratch my back, I’ll scratch yours” basis is so much easier than working out the messy business of effective and efficient risk management.
The answer to such ineffective forms of risk management is, of course, competition. I shall be looking around for someone else to replace this particular line of credit (still quite substantial) who has better risk management techniques, preferably ones based on an individual relationship. Yet the prospect looms before us of new regulations designed to keep these old, inefficient, socially harmful firms in a dominant market position, at least partly so that governments can earn a return on their ill-advised investments in them.
Boy, do I feel like the Forgotten Man today.
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I can almost guarantee it was American Express. The same thing happened to me last week. I've always been good about paying and nothing has changed in my income or debt in a long time, yet they still lowered my limit. Not too long ago, they were only too happy to keep raising the limit–until we asked them to stop.
My boss got the same notice the other day from American Express and he also says he hasn't added to his debt and has been great with his payments. This must be happening to a lot of folks.
Well done, sir. I had a similar event happen to me last year, after paying off revolving debt, eliminating unused accounts (to reduce the amount of credit on offer) and having nicely fattened up the brokerage accounts (all moved into bonds and similiar instruments, so still growing, albeit slowly and not contracting) to get a missive from a Famous Company saying they were reducing my credit line as I was riskier.
Reeely. I still have a credit score in the 700s and I'm riskier.
Heh.
So, I don't do business with them anymore, either. And it wasn't AMEX. They're still happy with me.
“I shall be looking around for someone else to replace this particular line of credit (still quite substantial) who has better risk management techniques, preferably ones based on an individual relationship.”
Good luck with that. Maybe you could try George Bailey down at the Building and Loan Society.
I mean, really. What year do you think you're living in?
AMEX here as well. I have paid my balance off almost every month, And I think I have had 1 or 2 payments late by a day or two.
You can get as technical as you want about the late payments, but I obviously have been attentive of my payments.
I am canceling my account.
Ridiculous.
Actually just about any local credit union will do business on a more personal basis than the credit companies or big banks.
but if you've paid off your other cards, why not just zero this one out and go cold turkey on credit period. just get a debit card, perhaps on a segregated account, and use it like a credit card up to the limit you yourself set.
Yes, sir, AMEX strikes again. It happened to me 3 weeks ago. The most ironic thing is — when I called AMEX back the day after I received their call, the first thing the rep said to me was, “We see that this year marks your 25th year as a customer with American Express. We'd like to thank you for your business.” I told him to stow his thanks, as I was leaving.
This is EXACTLY the type of thing that will make a downturn into a large recession. If AMEX get's one dollar of government bailout money, one of the conditions should be that they may NOT do this to those of us who have NEVER had a late payment with them. The rep confirmed that we had a spotless record with AMEX.
Un-freaking-believable.
Ha ha ha, and I thought it was just me. But it seems Amex hates everyone else too. My wife was embarrassed when she took my card to fill up her minivan, and then it was rejected at the register, with not enough cash to spare. She called me in shock, and I went online to check my account… yup, payment received, account in good standing, no notice of anything amiss. So I call them and get told that they suddenly don't like my debt to income ratio. What the hell?
Got a MasterCard from my local credit union. Bye bye, Amex.
You betcha AMEX. Same thing happened to me, but I bet the fellow who mentioned home values is on to something, ours is down $400,000, still not underwater but but I can see the shoreline from here. My wife loves AE, I don't have much use for them myself. She has some kind of points deal with Saks. Anyhow when they dropped our credit line I immediately made a jumbo payment., so my wife could do her thing. Yep, as soon as I paid, they dropped it again. I have never missed, been late on a payment, and back in the day working overseas would do 10-12K a month with them. No more. Plus I didn't get the notice on the first drop until 4 days after they made the change and just founf out when I went online to pay. Class Act.
Yes; 'cause some people are irresponsible when they get ahold of a credit card and some end up getting themselves into debt for ten years or more just from one Christmas shopping spree.
AMEX is hurting right now. They are very close to going under, this is why they restructured themselves as a bank. They wouldn't qualify for Governemt Bailout money without the restructuring.
As for your problem try approaching a local bank or credit union about a rolling 90 day loan. You hvae to make the payments and at the end of each 90 day the new loan has to be less than the previious loan but it is well structured traditional finacial instrument, the interest should berational and the rules do not change on you in the middle of a month. The current crop of “Investment Banks” are pulling things the loan sharks would not dream of doing fifty years ago.