American Express customers who can pay off all of the cash advances and charges on their credit cards might be eligible for a cash reward.

The company has sent letters to certain customers who could qualify to get $300 if they pay off their full balances in March or April. The customers who received the offer have until the end of February to accept.

A strange business idea?

There is more to it than just paying off balances for these select customers. In order to qualify for the $300 reward, customers must also close their credit card accounts. So that’s the deal: If customers pay off all charges and cash advances and cancel their cards, American Express will send them a prepaid card worth $300.

This struck me as a little odd. I have never heard of a company offering customers an incentive to stop doing business with them. So what is the explanation?

Words from the company

Company spokeswoman Molly Faust says it’s part of the company’s strategy to cut expenses.

“We are looking at different ways that we can manage credit risk based on the costumer’s overall credit profile,” she said.

The company wants to save $1.8 billion in 2009, and part of its strategy is to scale back on efforts to gain more customers.

Strategy backfired

American Express’ earnings have fallen sharply this year, much like its competitors. Discover Financial Services, Capital One Financial Corp, JPMorgan Chase & Co and Citigroup Inc are all scaling back credit lines of select customers.

American Express’ strategy to gain a wider customer base may have contributed to its monetary troubles, according to Reuters:

American Express, often seen as catering to relatively wealthy customers and companies, has been expanding its credit card business in recent years by reaching out to a wider range of clients. But that strategy has backfired. The company’s earnings tumbled in the fourth quarter as credit losses jumped and debt-burdened consumers slashed spending.

Too many late payments

American Express managed to recruit a lot of new customers, but in January credit card delinquencies rose more than analysts, or the company, expected. Credit card payment delinquency has gone up steadily as unemployment has increased.

American Express shares have already lost a third of their value this year.

Consumers cut spending, use of credit

Spending has decreased overall on everything from homes to hairspray. People are learning to live within their means instead of using credit to buy things like furniture and clothing. Fewer people are able to get credit cards now, and fewer people who have credit cards are using them. Americans are starting to realize that there are, in fact, consequences for racking up large debts. Those credit card payments seem a lot bigger to someone who has lost his or her job.

Traditional means of credit have become less accessible and less popular. However, short-term financial solutions, like cash advances and payday loans, have become more popular as people explore more solutions to their financial troubles.

Nice price, but don't use your American Express there!

Kevin Drum blogs on Mother Jones that there’s yet another reason to rely upon a cash advance when you need emergency funds. Actually, that’s my interpretation, because it’s an easy connection to make. And for many thousands of people, it would be exceedingly more useful than depending upon a credit card that judges you based upon where you shop. Whether they’re attempting to be a social crusader or simply being snooty, American Express is apparently monitoring cardholders’ credit statements closely. If you shop at Wal-Mart, your credit limit could be lowered.

That’s what happened to Kevin Johnson, according to the Atlanta Journal Constitution. He actually received a letter from American Express which stated that “other customers who have used their card at establishments where you recently shopped (Wal-Mart) have a poor repayment history with American Express.” In other words, American Express persecuted Johnson for value shopping. They lowered his limit to reduce their “risk of exposure.” And in other news, misguided legislators are chomping at the bit to take away consumers’ right to choose payday loans when they need extra cash.

What is AMEX’s official response?

AMEX spokeswoman Lisa Gonzalez wouldn’t name any names, but she doesn’t have to, does she?

We’re just doing this to manage risk… customers who have loans outstanding with certain lenders or customers who make transactions with certain merchants tend to have a higher proportion of credit issues or a higher probability of default.

Then there’s American Express spokeswoman Susan Korchak. In a lackluster attempt at spin control, she told the New York Times that it was all “just a big misunderstanding” that the language about “establishments” where Mr. Johnson recently shopped wasn’t a way to single him or anyone else out for shopping anywhere in particular.

OK, then just what are you saying, AMEX?

Denial does not excuse you from abusing the public, American Express. It simply spreads more of your slime on the wall. And if you think people like Kevin Johnson are going to lie down and take what credit card companies like you are trying to put over on innocent people, think again. Mr. Johnson has taken it upon himself to be a consumer advocate against the likes of you. Cash Advance Mojo and his colleagues at Personal Money Store wish Kevin Johnson and like-minded citizens the best in their fight for financial freedom.

Related articles

• Carded: Customers Spied on Then Penalized (abcnews.go.com)
• NewCreditRules Asks, Which Of These Stores Will Get Your AMEX Card Reduced? [American Express] (consumerist.com)
• Credit Card/banks lowering credit limits based on WHERE you shop (americablog.com)