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American Express' $300 Deal Shows Industry Trend

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American Express' $300 Deal Shows Industry Trend

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American Express' $300 Deal Shows Industry Trend

American Express' $300 Deal Shows Industry Trend

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  • <iframe src="https://www.npr.org/player/embed/101152431/101158621" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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American Express is offering select customers $300 to pay off their credit cards. Attorney Gail Hillebrand says she thinks American Express wants people to use their tax refunds to pay off the balance, instead of putting the money toward another card. iStockphoto.com hide caption

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American Express is offering select customers $300 to pay off their credit cards. Attorney Gail Hillebrand says she thinks American Express wants people to use their tax refunds to pay off the balance, instead of putting the money toward another card.

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American Express announced Monday it's offering $300 payments to a limited number of cardholders who agree to close their accounts. The company said the incentive will help reduce the risk of future defaults.

The move is the latest example of steps credit card companies are taking to protect themselves in a rough economy.

But Gail Hillebrand, a senior attorney at the Consumers Union who has been tracking changes in the credit card industry, says this deal at least offers consumers a choice, which is not always the case.

"We're seeing all kinds of cutbacks and harsher terms," Hillebrand tells NPR's Michele Norris.

The deals are "designed to respond to the fact that the credit card industry pushed out too much debt to American consumers and too much credit availability, and now they're trying to pull it back all at once," she says.

Hillebrand says she suspects the timing of the American Express deal may coincide with consumers receiving tax refunds.

"If you're going to pay down your debt with the tax refund, AmEx wants you to pick them instead of one of your other credit card companies," she says.

Anyone who is eligible will have already received an offer in the mail with a reservation code. Under the offer, cardholders must pay off their entire balance between March 1 and April 30 to receive the $300 prepaid card.

Slashing Limits, Raising Rates

But while American Express is offering a carrot to move potentially troubled accounts off its docket, other credit card companies have been slashing credit limits, whether the account is troubled or not, says Hillebrand.

"Many consumers who are complaining about this to me are saying, 'I never missed a payment, I haven't been late, I have generally good credit,'" Hillebrand says. "But the companies are trying to reduce their overall exposure by bringing the limits down very close to what is already owed. Some consumers are telling me that as they try to pay down their existing balance so as to make it look like it's not maxed out on their card with their new limit, it's being lowered again."

Hillebrand says the Consumers Union has also seen rate increases over the past year with "vague explanations like 'market conditions.'" And consumers are being put into the "penalty box" for simply missing a payment by a day or two. The difference between the promised rates and the penalty rate is 16 percentage points, the highest it's ever been, she says.

Even consumers who are doing everything right are getting rate hikes.

"What we're seeing is people who aren't in the penalty box still getting rate increases and getting told, 'We think you're a higher risk than we thought before,' even though nothing has changed for the consumer," Hillebrand says.

The bank has a set of parameters for choosing the consumers for rate hikes, but it isn't telling consumers what those parameters are, according to Hillebrand.

What's more, the room for negotiating the rate down is changing.

"We used to tell consumers, 'Call up, be nice, patient, persistent — and ask for a change,'" Hillebrand says. "I have several consumers who have contacted me and said, 'I called up and said, "Why is this happening to me?" And they raised my rate even more.' I was shocked by that, and I don't shock very easily."

Hillebrand suggests consumers read the fine print — and keep balances low if possible.

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