Not too many months ago, most consumers’ mailboxes were filled on an almost daily basis with offers for new credit cards. Most of them were emblazoned with “You’re approved” in bright red letters across the front as an enticement to open the envelope and say “yes” to the opportunity.
Along with those offers were envelopes filled with cash advance checks from current card issuers. Some of them were already printed out in amounts of $3,000, $5,000, or even more. The message was clear: “Just sign the check and deposit – and go indulge your every whim!”
Often those messages came with enticements such as free gifts, reward programs, and interest-free trial periods. But that was last year.
Now, that deluge has slowed to a drip – and it only lands in selected citizen’s mailboxes.
Instead of seeking new card holders, credit card companies are closing unused accounts, slashing credit limits, and raising interest rates so high that most consumers can hardly wait to pay their debts and get out from under.
American Express, while also using those tactics, has taken an additional step: They’re offering significant “bribes” to current account holders to pay off their balance and close their accounts.
American Express isn’t revealing how many consumers received the letters offering them a $300 pre-paid credit card in exchange for paying off their accounts between March 1 and April 30.
Although other card issuers, such as Chase, offer similar (smaller) bribes to customers in default, American Express is targeting those customers who might go into default. One or more of the various scores kept on each of us has indicated that they’re a higher than average risk.
This is just one more step being taken by card issuers who are seeing near record numbers of defaults and charge-offs.
The result for consumers is anything but good. Low interest rates on both credit cards and mortgages require high credit scores. High credit scores rely on many factors – one of which is the ratio of debt to available credit. So every time a card issuer closes an account or reduces a credit line, the consumer’s credit score takes a hit.
This is a self-perpetuating cycle with no end in sight as yet. Hopefully the credit bureaus will begin taking notice and adjusting scores accordingly. However, there’s been no news of that happening.
One has to wonder – when the credit card companies “weed out” all those consumers who have been carrying balances and paying interest, they’ll be left with those who pay their balances in full each month. That will cost them money, so the next logical step will be to begin closing those accounts as well.
Then where will their income come from?
