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It is catching: AMEX Now Rewarding Irresponsibility
Old 02-24-2009, 10:20 AM   #1
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It is catching: AMEX Now Rewarding Irresponsibility

Apparently the "modified incentive structure" popular with recent government programs is spreading to the private sector. AMEX is offering gift cards to problem customers if they'll stop being customers.

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It used to be that credit-card companies lured customers with cash rewards. Now American Express Co. is paying to get rid of them. The card issuer is offering selected customers a $300 AmEx prepaid gift card if they pay off their balances and close their accounts.
I'm not quite sure why AMEX doesn't just cancel or refuse to renew the accounts rather than pay a reward.

At this rate, the next time a cop pulls me over I expect to get a Lowes gift card.
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Old 02-24-2009, 10:25 AM   #2
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From the article:

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"The intention is to help cardholders lower their debt and encourage responsible management of their credit," says Ms. Faust. It's being promoted as a means for customers to "simplify their finances."
Wow, my BS meter is going off the charts. Yeah, they are doing this out of concern for the consumer. Sure.

In any event, by my calculations if I charge $2000 a month (paid off monthly) on my card that gives 2% cash back, I'm getting $480 a year anyway...
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Old 02-24-2009, 10:32 AM   #3
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Originally Posted by samclem View Post
I'm not quite sure why AMEX doesn't just cancel or refuse to renew the accounts rather than pay a reward.
I believe that the offer is mostly going to accounts with balances; perhaps those who are only making their monthly minimums.

Their goal is to remove that default risk.

Ha
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Old 02-24-2009, 10:50 AM   #4
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I bet it is pretty simple.

They feel that this $300 "reward" ("write-down with strings" would be a more financially correct term I think) is going to provide more/faster return than paying a collection agency.

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Old 02-24-2009, 10:52 AM   #5
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Here's another way to look at it.

Pretend you had $10,000 saved in a financial institution you thought was becoming insolvent. There is no collateral or insurance backing the promise to pay.

Let's also say that you could pull the money out today, but only with a $300 fee for early withdrawal. Do you eat the $300 and secure the other $9700 or do you keep the money there and hope you don't lose the entire $10K?
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Old 02-24-2009, 11:03 AM   #6
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I read that article and interpret it as saying Amex will send customers $300 if they pay off their outstanding balance.

I'm going to bet that people who carry a balance are not going to be able to come up with the $$$ to pay off their outstanding balances--some of them probably pay way more than $300 a year in interest and that hasn't caused them to pay off the balance, so what's the allure?
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Old 02-24-2009, 11:20 AM   #7
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--some of them probably pay way more than $300 a year in interest and that hasn't caused them to pay off the balance, so what's the allure?
I forget the term offhand, but most people look at (edit: the avoidance of) a dribbling out of $300 over time much differently than an immediate offer of $300 cash.

Two Israeli guys did these studies, I can never remember their names, one starts with "K". The "Freakonomics" guy references them.

Geez, I need more coffee, I'm not remembering anything am I? But I'll never forget old what's-his-name!

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PS - ahhh, google to the rescue:

http://money.cnn.com/magazines/fortu...8340/index.htm
Quote:
Two Israeli-born psychologists, Daniel Kahneman, 52, of the University of California at Berkeley, and Amos Tversky, 49, of Stanford, are at the forefront of research into the human decision-making process.
Every time I try to think of two guys that wrote a book and the first guys name starts with "K", "Kernighan and Ritchie" come to mind, and I can't get past that.
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Old 02-24-2009, 11:42 AM   #8
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I read that article and interpret it as saying Amex will send customers $300 if they pay off their outstanding balance.

I'm going to bet that people who carry a balance are not going to be able to come up with the $$$ to pay off their outstanding balances--some of them probably pay way more than $300 a year in interest and that hasn't caused them to pay off the balance, so what's the allure?
If that's the case it will be interesting to see if $300 motivates them to pay it off!
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Old 02-24-2009, 11:43 AM   #9
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Originally Posted by ERD50 View Post
Every time I try to think of two guys that wrote a book and the first guys name starts with "K", "Kernighan and Ritchie" come to mind, and I can't get past that.
Yeah, I think I can "C" that...
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Old 02-24-2009, 02:58 PM   #10
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If that's the case it will be interesting to see if $300 motivates them to pay it off!
I would bet ($300 in this case ) that the person with the $5,000 balance on the Amex account will not be able to come up with $5,000 to pay it off.
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Old 02-24-2009, 03:05 PM   #11
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Citibank did this a couple years ago. Back in my days of $100,000+ in credit card debt (carried at 0% and invested at 4-5%!), Citibank offered me 10-20% of whatever I repaid to pay down my balances, capped at $550 to $1100 per offer. There's another couple of thousand bucks I made off these suckers. Wonder why Citibank is having financial difficulties?

But the reason is sound - if they can get deadbeats paying the minimum payments to repay the whole debt, then it is worth it to write off 10-20% to get the remainder. Once you get to BK, the unsecured debtors (like CC companies) usually get very little, being low on the priority list.

I'm sure they get some folks who may happen to have some money saved up, but rationing it out and hoping it doesn't run out and hoping for their luck to turn around. Then these folks get an offer to basically refund a portion of what they repay, so it makes sense for them to focus their repayment efforts on that particular debt at AMEX or citi or wherever instead of their other competing debts elsewhere. These CC companies keep an eye on your credit report, so that is a good indicator (in the aggregate) of when you are going to default. Increases in credit velocity, high debt to limit ratio/utilization rate, new credit apps, high debt to income ratio, etc all show up on your credit report and get analyzed by their computers for risk assessment.
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Old 02-24-2009, 03:06 PM   #12
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I would bet ($300 in this case ) that the person with the $5,000 balance on the Amex account will not be able to come up with $5,000 to pay it off.
I was wondering about that too! Hard to imagine how someone with a $5,000 balance would turn $300 into $5,000. Are they keeping the cash in their mattress, and paying interest on the CC?

I suppose they'll try to transfer the balance to another card, just shifting the problem. I'd assume that isn't so easy to do these days, but I have no idea. Of course, they might shift it to a card with a higher rate, and pay more than that $300 over the next year.

Math is hard!

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Old 02-24-2009, 03:07 PM   #13
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I would bet ($300 in this case ) that the person with the $5,000 balance on the Amex account will not be able to come up with $5,000 to pay it off.
I think a lot of people really do genuinely want to repay their debt. And most want to avoid BK. It is inconvenient and carries a stigma among some circles.

So while many won't have $5k laying around, some might, and again, these CC companies are just interested in getting you to pay them first.
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Old 02-24-2009, 03:09 PM   #14
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Ah, I never thought about the old balance transfer ploy! That's the ticket!
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Old 02-24-2009, 03:14 PM   #15
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Ah, I never thought about the old balance transfer ploy! That's the ticket!
In this new "debt forgiveness" society we are creating, I wish I still had a couple hundred thousand in CC debt so maybe someone would take pity on me and write it down!

And I also wish I had made a gamble on a dozen or so houses in Cali or Las Vegas. I'd be willing to accept a few million in earnings for flipping houses if the downside is that I walk and/or get loan modifications. I'm the moral hazard you need to watch out for!
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Old 03-02-2009, 10:10 AM   #16
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In any event, by my calculations if I charge $2000 a month (paid off monthly) on my card that gives 2% cash back, I'm getting $480 a year anyway...

I just received my Amex cash rebate check. $772.00 Got it thru Costco, platinum card with no annual fee.

I don't revolve a balance, but if I did, maybe I could get the $300 from Amex and transfer it to the Discover Card offer I received in the mail last week- 0% on transferred balances until 2011.

Have not really noticed a marked decline in the number of CC offers we receive. DW and I are both 800+ FICO scores, and the CC companies are stilll inundating us with offers of easy money.

So much for the new improved climate of fiscal responsibility. Maybe we should just take all these folks up on their credit offers, live like royalty instead of LBYM, default when convenient, and then get in line with the rest of the folks who don't think their CC/Mortgage debt problems are their fault, and wait for our free cheese from Washington.
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