Friday, September 12, 2008

American Express's Financial Review System is Flawed, But I Respect Its Right To Request A Financial Snapshot From Time to Time

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, Amex 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 Find a way to get a current snapshot -- rather than some outdated record (from two years ago) that has no bearing on today.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 (link here); 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 (link here). 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 (link here). 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.

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Josh said...

To make matters worse, apparently American Express is extremely stringent as the procedures to obtain such tax records. They require the 4506-T and if for any reason they can't obtain the exact year they want(even in IRS error) your stuck with suspended cards.

I wonder if you can request an FR so that you can do it BEFORE you start using a lot. :) The idea is to basically give them all additional information they could possibly need to minimize the need to think your a risk. I know things change, but those tactics are harsh. Especially if your on a trip abroad.

One things for sure, paying late, high balances, low payments are all sure factors to dip your internal risk score with Amex and possibly trigger the FR.

Bob Wang said...


Josh said...

Or I wonder even a phone call to Amex CS:

"I'm calling to inform you I'm going on vacation and if you plan on doing an FR, DO NOT do it over the next few weeks, do it now!"

I bet if you push hard enough you could get to the credit analyst department and they could let you know if you are sort of, somewhat in the clear.


Credit Matters said...

Josh, I don't think I would invite an FR. Amex might just shut you down.

I'd rather lay low. Still, my point is that American Express needs to figure out another way to conduct these financial checks. They're killing whatever goodwill they had.

Credit Matters said...

Bob, I imagine GEORGE will find this story interesting, no??

Josh said...

Maybe not an FR, just willingly provide tax returns to prove your credit worthiness. You could just provide it as an excuse saying you want to ensure they can properly process your account and for future CLI's etc. if necessary.

Credit Matters said...

Josh, I think because we're in the loop, we're extremely sensitive to these FRs. But these FRs are probably not even a blip -- on a percentage basis. I'd be shocked if 1 in 500 were subjected to them.

Credit Matters said...

Josh, that will not insulate you from a subsequent FR. We've heard of people getting FR'd on more than one occasion.

No. Better to simply let the chips fall where they may.

And carry a BACKUP.

Bob Wang said...

You should PM GEORGE.
I'd like to see his comments ;-)

Josh said...

You should try to get the number for the FR department and get a statement from them about the matter. Hah.

Credit Matters said...

No thanks! LOL.

I will be posting this story over at CB. I imagine that George will see it.

I think he'll agree with every word I said. Haha.

Anonymous said...

It almost feels to me like my F/R is always around the corner so I stopped using the card waiting for it to be frozen. Once this freezing thing settles down I might go back to using my Amex. But for now in my opinion it maybe unreliable. All that I care about is when I use my card it will work. It's just as easy to choose another card from my wallet so I don't have a funny feeling in my stomach at a business dinner waiting for the waiter to come back saying... your card was dened.

Credit Matters said...

Anon, I totally understand that feeling. I always have a backup to my Amex card. Shouldn't be that way, but it is what it is. Sometimes I wish we didn't know what we know. Then we'd just wander around ignorantly -- happy go lucky and what not.

I've always got a second card at the ready.

Thanks for the comment, Anon.

The Lion said...

Another great article, CM.

BTW...How do you always post at the same time? Magic? Or is it time released?

Credit Matters said...

Lion, it's time released. Every morning at 12:01 am. It's scheduled.

Thanks for reading, pal.

The Lion said...

That is SO COOL. The internet fascinates me.

Credit Matters said...

Yep. Makes my life A LOT easier, too.

Come back soon.

Don Miguel said...

American Express does have the right to conduct business in that way. And I have the right to avoid them knowing that they might decide to shut me down at the most inconvenient time, and so do.

Even though other creditors occasionally shoot first and and ask questions later as well, Amex has a notorious reputation for the practice and is the only creditor about whom I've read numerous and frequent provocative accounts of snippy "service" representatives upbraiding customers--something I have no tolerance for--during a review process which is in some cases as intrusive as a six or seven figure mortgage application.

I have (in the words of a Creditboards sage) "a backup or two or ten," so they wouldn't do me any harm other than embarrassment, but I don't feel like risking even that for the scant (for me) advantages associated with Amex's products over those I already have.

Credit Matters said...

DM, you do have every right to avoid them. And I take it you do.

American Express needs to figure out a way to get the information it wants without alienating its best customers. We've heard many accounts of people being treated rudely once they enter the review process. These people then hit the Internet and badmouth Amex to no end. Not the kind of publicity I'd want if I was Amex.

That said, I often think that we're way in the know. Most customers likely have never heard of a financial review. And most will never be subjected to one. That's the one thing I have to remember when I'm thinking about doing biz with some of these companies. The odds are still in our favor that we'll never get a call from the financial review department.

But when we do, it sure would be nice if we were treated with respect and asked for relevant financial information.

Jen said...

does anyone know what % of AmEx customers (sorry if I missed it above) are being regularly (annually?) reviewed?

I'd like to see the metrics for the FR clients... what % are closed? reopened? CLD? CLI? their average HHI, etc. I'm all about the numbers. Of course, I don't see that being readily available.

I'm with CM above. ANY business with a decent risk model will periodically review the credit-worthiness of it's customer base. I am also with CM on the issue of freezing the accounts while the review is in place. For those that "pass" the review, surely they no longer have that warm-fuzzy feeling about their AmEx rewards. Who wants to take a client out to dinner and hold their breath while anxiously waiting to see if their card is approved? Mortifying at best.

Credit Matters said...

Jen, we're not privy to the FR data. Not only does Amex not disclose these kinds of figures, Amex NEVER talks about financial reviews in public. I haven't heard anything about a financial review on any of the conference calls. I try to listen to all the calls. Haven't heard a peep.

eldarwen999 said...

When Amex cut my credit limit to a toy limit (you can read the threads at CB and I am Battle_of_Evermore), I was very scared. I am treating them with kid gloves because I don't want a F/R conducted on me.

Credit Matters said...

I use the card for specific purchases, including Costco. I won't buy high-risk items. But I am beginning to think that I don't much care. I may start using it for more mundane purchases as well.

It's a card. I'm not going to worry about it. There are backups.

Collins said...

This is the reason I will never carry a pure AmEx product.
While I understand their need to get an update on their customers, I do not think that suspension of the account out of the blue is a business like manner to conduct such updates. I think that they would get much better responses if they called you up explained what is going on, and then told you that they were going to suspend the account for a while. At least a customer would feel like they were working with the company instead of the company working aginst the customer.
I will not be treated like a criminal and so I will not carry an AmEX product.
Perhaps if they change the way they do this, I might change my stance. Until them, i have many other cards to use.

Credit Matters said...

Collins, well said. I'm hoping that my story drove that point home. I have no problem with the checkup. I have a problem with the tactics.

Not sure why Amex has decided to shoot first. They've got our phone numbers. Call first. Reduce our spending ability while our account is under review.

Is that too difficult?

Anonymous said...

Makes you wonder WHY 99% of people are TERRIFIED of the Almighty F/R..... If ya love your AMEX, gotta play by their rules.... As stupid as they may seem....

Credit Matters said...

Anon, and it is a game. Unfortunately, it's a harsh game if you find yourself on the wrong end of a financial review.

Anonymous said...

Yes, they should be able to have a way to determine your credit-worthiness. I think they have that - it's called TransUnion, Equifax and Experian. I disagree strongly that Amex is deserving of income tax information to determine whether you are worthy of their credit card. IMO, they should play within the established system - or get out. To defend their pushing the envelope with their customers financial information is to ENABLE them. Instead, it seems consumers (like you?) should be complaining - loudly. After tax returns what is next? Personal visits to your home to "evaluate" your credit-worthiness?

Credit Matters said...

Anon, did you read my column? I said that American Express's current system is flawed. Asking for tax returns is lame. I agree with you.

However, I DO NOT AGREE that a creditor can simply look at a credit report and leave it at that. A creditor should have the right to request CURRENT financial documents (that means NO tax returns).

If you were a creditor are you telling me that you wouldn't like to see current financial information during tough economic times?

I'm simply arguing that these credit card companies, which extend thousands and thousands of dollars to us, should be able to perform a little inspection every now and then.

If you don't agree with that, then we'll just agree to disagree.

Meanwhile, I appreciate your comment nonetheless. Not all of my readers will agree with everything I say. But as long as they're pleasant about it, they can yell at me all they'd like.

Take care.

Knight said...

Great info as usual.


Credit Matters said...

Thanks, Knight. And thanks for reading.

Rich Woods said...

Current financial documents? Isn't the last payment info enough?

Heck, they have your checking account info from the check.

Credit Matters said...

Rich, good point. But I wouldn't mind seeing your bank statements nonetheless. Or your last couple of pay stubs.

Might be a little less relevant for charge products. I would be more concerned if we were talking about a credit card account where the customer continues to leave a balance.

Anonymous said...

Amex recently decided to do a FR on my accounts, i have 2 accounts with them, i dont think my balance has gone over 15-20% of my aval credit, never made minm payments always ontime, now these guys want to dig for past financials and what not... what a great time to put a stop to my accounts right when the holidays are here and great deals are out. I will be looking into closing out this account and going with another creditor. said...

Anon, once again I have to say that American Express's method for doing these FRs sucks. Using old tax records is lame.

Good luck on getting this situated.

And thanks for posting.

Anonymous said...

I have never had to deal with anything like this from any creditor I have dealt with since I got my first CC… if this doesn’t get situated by Thursday, they are not going to be in a polite convo with me that’s for sure, and I’ll make sure to go with another creditor, here is what I was told by the FR rep….it takes 14 days!! For them to get previous tax returns from the IRS???.... the IRS can knock on your door within hours if they need something…. but yet I can’t use my AMEX card to pump gas! And have a balance of less then 200$ a month. said...

Anon, that's why this FR system sucks. They shut the card down and then you find out about it when you try to buy something. It's majorly inconvenient. Also, it can take a long time for them to finally release your card. Good luck with the FR. Let me know how it turns out.

Anonymous said...

Here is an update on my status with amex’s FR, mind you I was about to buy tickets to fly out to see family this upcoming holidays but that just went out the window… so I called them late last night to get an update on the account and someone told me that “OO WE JUST RECEIVED your tax returns” and they look excellent and the person who is working on the account will call you early on tomorrow.

so I got a call this morning same rude guy that has been working on the account from the start, he says “sir at this point I am going to ask you to sheared your cards that you have with amex as your account is closed… just a side note I would definitely not recommend an amex card, even after using for YEARS with no problems from them nor me, but this was just a surprise 180 degree turn around. said...

Anon, that's not a shocker to me. I have heard from plenty of people during the past couple of years who have complied with these financial reviews -- only to have their accounts closed anyhow.

Also, the FR team is just flat-out rude. That seems to be a common theme from my readers. American Express should hire people with a sense of humanness. At least.

Anon, I hope you have backup cards. I preach diversity on this site. Have more than a single card from different lenders. That way if one of them goes crazy you can turn to a different card.

Thanks for the follow up.

Anonymous said...

yes i agree. o well one customer down.. great website by the way. happy holidays said...

Happy holidays to you, too, Anon.

Sorry about the Amex situation.

Take care.

Anonymous said...

I'm going through an FR with american express right now, at christmas!! and you know how much i owe them?? $200.00 and i am in perfect standing!!! i went to order a plane ticket and the card was denied , i called they explained i was under review and couldn't use the card and to call back tomorrow! wtf! They could of called first, or told me ahead of time, but now this hurts me , and will ruin some of my christmas plans :**( said...

Anon, once again, this is why I hate the way they do it. It would have been nice if they gave you a heads up. And $200? Lame. That's just stupid.

They should pick on customers their own size!!

Let me know how it goes.

Anonymous said...

I recently used AMEX platinum on a $40,000 anniversary gift to my wife and this triggered a FR. The person in charge of FR was VERY rude and treated me with very little respect, as though I have to prove my innocence with my tax reports, etc.

To add insult to injury, since the billing cycle wasn't within the next 5 days after which they threatened to close the account, I didn't get any points for the $40,000 purchase ($400 value). This is just ridiculous... I'm never taking my business to them again, there are too many alternatives to deal with this nonsense.

I cancelled the card within minutes, but the

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