In July, we wrote about credit card companies who were lowering credit limits on credit cards in an attempt to minimize their exposure to the credit markets. The accounts with lowered credit limits were current with payments being made on time.
Now American Express is aggressively cutting spending limits on consumer accounts and is being quite up front about jut why they are doing it. The reasons may come as a surprise, but apparently this practice has been suspected all along by credit card experts.
Among criteria for reducing spending limits:
- where you live
- where you shop and
- who holds your mortgage
How does this work? For instance, if American Express thinks you have a sub-prime mortgage, or if you live in an area where the percentage of housing foreclousres is high, your account may be red-flagged, even if you are making your payment on time. If you shop at a dollar store or buy something at a rent to own center, you may also be red flagged and targeted for having your limits lowered.
If you are a small business owner without a line of credit who have relied on credit cards to purchase goods and services (such as travel) during the course of normal business, this has a crippling effect.
So is this illegal? Unfortunately not. Credit card companies can lend to whomever they want to lend and they can make whatever rules they want. Unfortunately.
What about you? Have you had a credit card limit lowered?
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6 responses so far ↓
1 jen // Oct 9, 2008 at 4:14 pm
Just yesterday I receieved notification that one of my credit card companies was lowering my credit limit. Even though I pay on time, even though I hadn’t used this particular card in quite a while, and even though I pay over the minimum payment, the notification didn’t bother me. In fact, I wish other companies would do the same. Why? Because there are too many people, I used to be one of them, who view available credit as a way of paying bills or buying the extra things they think they need. When I look at how I’ve spent money on a credit card, I often cringe. Where is all this “stuff” I bought? 80 percent of it is long gone. And 90 percent of it wasn’t necessary to begin with. I think we should ALL stop trying to “keep up with Joneses” and live UNDER our means. I’ll let you know how it goes. (ha!)
2 Bill // Oct 10, 2008 at 6:18 pm
So is this illegal? Unfortunately not.
You make this statement as if you think it should be illegal — or at least that it is somehow unethical.
To the contrary, banks would be very smart to take these factors into account and should have been doing this years ago.
Face it. The banks have been as dumb as consumers. Consumers in an orgy of gluttony and banks in an orgy of greed.
I’ve been saying for a very long time that credit card debt is a bad deal for everyone — looks like the chickens are coming home to roost. I take no joy in saying how tough it is going to be. I only hope that we as a nation learn something from this fiasco.
3 Michelle // Oct 30, 2008 at 8:50 pm
About 2 years ago I logged on to check my AMEX account online and it had been red flagged and suspended. Never a late payment with them or any of my creditors, excellent credit, etc. I wondered what was going on and why they did this to me, I was a good customer!!! I called them and they wanted back copies of my tax returns for the last 2 or 3 years or permission to access them, I guess to verify income. Aparently there had been recent unusual spending activity on my credit card account (w/ a 50k limit). Oh I forgot to mention, earlier that month I bought a used car with my amex, no really…. a fairly decent one too at 33k…but paid my balance on the AMEX off the next week. (Hey! I wanted to rack up my reward points! Why not?) And I was 21, lol, so I suppose that did look a tad bit strange to them. I was offended that they were doing this to me, but I can’t say I blame them, I mean it was ridiculous to extend that huge amount of credit to a 21 year old (I had my Amex since I was 18 and it was soley my account and responsibility) I wasn’t an AU on mommy & daddys black card lol. Why on earth they gave me that many credit line increases over a 3 year period doesn’t make sense, I started out witha 2k limit. It was a bad idea on their part to do these account reviews and slash credit limits on their existing “good standing” customers also. I felt like it was a slap in the face, contemplated running up a balance, not paying, and ignoring the phone calls, but ultimately realized that would only hurt me in the long run. I just closed the account and they lost a potential life long customer. Has anyone else had this happen with their AMEX?
4 george // Nov 7, 2008 at 2:28 pm
I have had Amex Platinum since 1993. During that time I’ve owned 3 businesses and been #2 executive in public company that bought one of them. I’ve charged — and paid timely — over $7 million in aggregate on my platinum accounts. In 2004. when buying an airplane, I had received approval to put $200,000 on it to cover a paperwork delay from the principal financer of the airplane. My net worth is “over $4.5 million” and I draw “in excess of $300K per year from my current company — which has been in operation since 1996 — that I acquired 3 years ago. This week AMEX notified me that my new spending limit is “under $7000″. Five (5) “credit department supervisor” conversations later, one of them finally admitted that not AMEX, but “their bank” is calling the shot on spending limits. And, there is no one who will look past “credit bureau reports”. IMO American Express is a failing company — likely to disappear after they alienate “convenience card users” due to their new “lack of convenience”.
5 joan // Nov 15, 2008 at 2:46 am
We have always paid our mortgage on time, paid Amex on time for 20 years. What seems manifestly unfair is that we are being treated like credit criminals because of the actions of other consumers. We were just notified that our credit limit had been reduced. Where is the reward for timely, responsible handling of accounts? What this sort of statistic-based prejudice towards customers will do: wean us off of our credit cards–not a bad thing. But once weaned, we’re not coming back. Punishing and humiliating good, loyal, responsible, long-term customers for the defaults of other customers is ridiculous. Some of us aren’t affected by this crisis. We didn’t over leverage our homes, we have great jobs and the same income we had before. Our spending habits haven’t changed, we still handle our account responsibly as we have for 20 years. Your execs have decided it’s smart to treat us like deadbeats. Maybe you should worry more about curtailing your execs.
6 Megan // Nov 24, 2008 at 1:05 pm
I spent many years after college building up my credit score so I could buy a house. One of those steps involved opening an AmEx card so the limitless card could improve my debt utilization ratio. I’ve been a good, careful customer, have kept my card largely paid off and did buy my house over the summer.
Shortly after the mortgage was processed, AmEx imposed a limit (they cited my “spending profile” but I didn’t have any weird purchases, so I still don’t understand that). Anyway, I had some charges on the card for stuff for the new house and my upcoming wedding - so the new limit destroyed my debt utilization which made my credit score plummet. Then a couple of months later they lowered the limit AGAIN (citing a lower credit score). When I called to argue the hypocrisy of lowering my credit score and then punishing me for a lowered credit score, the REP started crying and said “at least your new limit is above your balance - they lowered mine $1000 below my balance and I’m getting over limit fees every day. I don’t know what to do!”
I think this is a horrible way to treat good customers. I really do hope they go out of business - would serve these yahoos right.
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