I saw a very interesting news story today- Amex is paying $300 to certain card holders for closing their credit card accounts. You can find the full story here.
The idea is that as the economy worsens, the chances that people will default on their credit card loan will increase, making Amex vulnerable since it will have to write these bad loans off. By offering a monetary incentive, Amex is hoping it will be able to coax some of these potential future defaulters to pay up now.
Contrasted with the behavior we have seen from credit card companies in the past (rewards, pre-approved offers etc.), this is certainly new territotry. I wonder how effective this will be given the cost of the incentive plus the fact that many people just cannot afford to pay back what they have already spent. What do you think?
This is very interesting. First they spend on getting customers and then they spend on getting rid of them!
Why can’t they just close the cards without paying them anything? That should work out much more cost effective and if its safe for the banks it is safe for the tax payers
I think that if Amex closes the account, they cannot guarantee that the customer will pay them back (instead of declaring bankruptcy, for example). I think, the eligibility requirement for getting the $300 incentive is that the customer pays back every penny they owe first – ensuring Amex’s loss per customer is capped at $300. This is my best guess.