Amex Pulls a Wily Coyote

Here’s one that’s likely to blow up in American Express’s face, courtesy of Crain’s New York Business:

American Express quietly changed its contract agreement last week for all credit cards in its Blue line: Starting in September, a late monthly payment will cancel out any rewards points earned for the month.

“This is Exhibit A of why everyone is furious about their credit card bills,” said Kathleen Day, of the Washington, D.C.-based Center for Responsible Lending, a nonprofit organization.

I can visualize the meeting at Amex. It starts with a senior someone saying, “We need more fee revenue.” Whereupon another someone raises his hand and says, “Do we give reward points to cardholders who pay us late? We shouldn’t.” Everyone harrumphes. Then, that other someone down at the end of the table says, “Everyone’s going to be really pissed off when we take away their rewards points. We can give it back to them, if they pay us — you know, like a transaction fee.” And all the someones nod, jot it down, and go on to a discussion on where their going for the company’s annual summer outing.

Yes, this kind of thing makes people hopping mad for a couple of reasons. Firstly, Amex is once again changing the rules mid-game. The whole notion of unilateral contracts and agreements is inherently misguided and so painfully unconscionable to cardholders. An agreement is a two-sided thing, yet credit card companies systematically treat their relationship with customers as a one-sided dictatorship.

Second, it never feels right to be kicked when you are down, and that is effectively what Amex is doing. The cardholder stumbled — so Amex is hitting him with more penalties, on top of any of the late fees it has already levied. Here’s Amex’s explanation:

An AmEx spokeswoman said the company designed the rule change to “incent” customers to pay off their balances, and “because we want to give card members the opportunity to reinstate their points.”

So generous.

Finally, this feels very much like Amex is getting in its licks before the new credit card rules that would prevent such mid-contract changes from taking place. It’s very Wily Coyote of Amex.

This all points to the obvious truth that the credit- and card-card businesses have strayed far from their initial models. In the past, these businesses were about convenience and access to credit. Today, the business model is centered on this cost-benefit push and pull between the card companies and consumers. We give you rewards, and you give us fees. You pay us on time, or you pay penalties. There’s little “we’re happy you receive your interest payments” in this business model for the card companies. And that’s why consumers view the card companies with disdain, because the companies have not just overhauled the terms and conditions, they’ve overhauled their business model. And not to the consumers’ advantage, but to the card companies’ advantage. Makes you want to go out and start your own credit card company … but who has time to build a scalable servicing platform?