I'll be the first to say that American Express's financial-review method is flawed. Seriously flawed. Indeed, what other credit-card company shuts down someone's credit card (with no notice) and then requests financials? The system wreaks havoc on customers who get subjected to these infamous financial reviews. Still, I don't mind American Express requesting financials from time to time. American Express just has to find a better way to do it.
Many people don't appreciate the need for a periodic checkup. Indeed, many people detest the fact that American Express -- or any other credit-card company, for that matter -- would ever ask them for an updated financial snapshot. Isn't my payment history good enough? Don't I pay my monthly bill on time and in full every month? Why should American Express care about my current financial position? If you want financials, ask for them before -- not after -- I get approved. I've heard all of the arguments. I'm sympathetic to them, but I still believe that credit-card companies have every right to request updated financial information from customers.
What's more, many (but not all) of our credit-card companies say they have a right to ask us for updated information (financial or otherwise) in the future. Heck, American Express makes its disclosure on the first page of my cardmember agreement: "We may also request additional information from you at any time." Other card companies make similar disclosures. USAA, for example, says that "you will provide updated financial information upon our request." So it's there in black and white -- for anyone who wants to read the cardmember agreement.
My biggest gripe with American Express is that it shuts people down. It ties up the account for at least a week (and sometimes more). Recurring bills, meanwhile, could go unpaid while the account is suspended. And then it requests income-tax returns that are one and two years old. That I don't get. What do past returns have to do with present financial wherewithal? If you want a proper snapshot, request recent pay stubs or bank records. And, yes, I know. Pay stubs can be forged. Still, I think I am on the right track here. Find a way to get a current snapshot -- rather than some outdated record (from two years ago) that has no bearing on today. And, please, American Express, stop leaving people stranded out there. Why not reduce the limit substantially while the account is under review? Neuter the customer's spending ability. Don't kill it.
Aside from the flawed method that American Express uses to verify financial wherewithal, I think it has every right to find out how its current customers are doing. Think about it. The company is extending unsecured credit to you on a regular basis. Your ability to pay is based on the amount of income that you claimed you had at the time of the application. But things change, including the financial environment. Five years ago, when you first applied for the card, you were making $125,000 a year. Now, because you lost your job and replaced it with a lower-paying one, you're making just $39,000 a year. That happens. American Express knows it happens. And you know it happens. Therefore, it's incumbent upon card companies to do routine checks on its cardholders. If they're not, then they don't have an accurate picture of the risk they're exposed to.
If I was a lender, I'd conduct spot checks as well. Though you qualified five years ago for my card -- and were granted a certain limit based on your income then -- there is no guarantee that you're still in the same financial situation today. If I am basing your credit limit on five-year-old financials, it's possible that I am miscalculating the risk that you represent. To be sure, there is a chance that your income could actually go up as well. If it has, I'd like to know -- so that I can possibly extend more credit to you. The point is that only a financial spot check will allow me to know what I am currently dealing with as it pertains to my customers.
One thing that miffs a lot of cardholders -- especially American Express cardholders -- is that American Express has a nasty habit of shutting people down even when the financial picture has actually improved with the customer. But to think that American Express is cutting limits or closing accounts based solely on income is foolish. The company looks at a lot of things; income is just one part of the equation.
It always sucks when a credit-card company does something that negatively impacts your credit position. Citibank recently shut down my line of credit. I lost nearly $25,000 in available credit because of it. Hey, those are the breaks. It's Citi's prerogative to shut down accounts that aren't profitable. It could have used any excuse to shut me down (read the cardmember agreement; every card company says that). It's Citi's money. It was a privilege that I was able to use it. It was not a right. We'd all do so much better if we stopped thinking that we were entitled to something. We're not. If American Express is your only creditor, then you're a fool. My blog is replete with admonitions to have backup cards (do a search of the word "backup" on this site). Ignore those admonitions at your own peril.
This is a difficult credit environment. Although I carry no balances, I expect to see another account closure or two. If it happens, I won't cry about it. It's just business as usual. I knew what I was getting into when I decided to apply for credit cards. Card companies -- right now -- have itchy trigger fingers. And rightfully so. I've never seen a credit environment like this; I expect it to get worse.
I fully expect American Express to continue picking people off with these financial reviews. My nit isn't that they do these financial reviews; my nit is in the way they do them. I think a lot of cardmembers are upset that American Express has the nerve to do these spot checks at all. To those people, I say this: I'm not with you. It's not your money. It's a business. Be upset with the way American Express conducts these financial reviews. Don't be upset that American Express is doing its due diligence to make sure that you're still the same customer you claimed you were years ago -- or the customer you claimed to be just a few weeks ago.