Denver, (WiredPRNews.com) — Many small businesses complain that their own efforts to survive the recession are being hampered because credit card issuer American Express has cut their credit limits without adequate justification.
Customers like Jeffrey Hammerberg of Hammerberg & Associates, a prominent international Denver-based real estate brokerage company – are angry and upset. “In October our American Express business card limit was cut from $55,000 to $49,100 for no reason, nothing had changed for us” complains Hammerberg. “Then in mid-February they reduced it from $49,100.00 to $48,500.00 – again for no reason that I can figure out.” Additionally, previous flexibility in payment terms has just been cancelled.
American express accounts that had previously been paid in full every month are now left with high balances because of the fear, and new practice, of American Express reducing credit available and changing previous agreements monthly.
Apparently experiences like those of Hammerberg are part of a growing trend. The Atlanta Journal-Constitution, for example, ran a feature article in December about the same problem. In the article it described that American Express had sent out letters to many of its customers informing them that it was slashing their credit limits – but recipients of the notices included many cardholders with perfect payment histories and high credit ratings. American Express, the article explained, scrutinizes such things as a cardholder’s spending patterns and which mortgage lender they use, and then considers the data when making some credit limit decisions. If a customer owns a home in an area where house prices are in steep decline, that information may also influence credit limits.
Hammerberg lives and works in a relatively non foreclosure-plagued city of Denver, CO and he says he has written his congressional representatives demanding that they launch an investigation. He wants to know why this is happening to people like him who have an excellent track record of payments and credit history. But he is not alone. The Boston Globe recently reported that Senate Banking Committee chairman Christopher Dodd has proposed new credit card company regulations, complaining that companies issuing plastic have been “gouging” consumers.
“At a time when our economy is in a crisis and consumers are struggling financially, credit card companies in too many cases are gouging them, hiking interest rates on customers who pay on time and consistently meet the terms of their credit card agreements,” Senator Dodd told reporters this month. The congressman pledged to keep pushing for permanent changes to protect consumers from unscrupulous lending practices that are – as Dodd put it “antithetical to economic growth.”
While steps like those taken by American Express are completely legal, many consumer advocates warn that such practices come dangerously close to the practice known as “redlining.” Redlining involves not offering loans, insurance policies, or real estate services to people in certain neighborhoods – and is a form of illegal discrimination.
Lowering credit limits can cause a chain reaction of other financial problems. That’s because those who use less of their overall credit are rewarded with higher credit scores, whereas those who use a larger percentage of available credit have points deducted. So having a bank line of credit or a credit card limit amount slashed can cause a consumer to suddenly get hit with a significantly lower credit score. That makes it harder to get any kind of loan at a time when consumers are already struggling and businesses are fighting to stay alive despite a conspicuous lack of bank credit.
In the midst of all these complaints, American Express applied for and was granted Federal Reserve approval to become a commercial bank, and the Fed even waived a 30-day waiting period on the application, citing emergency economic conditions. That gives the financial company access to special federal rescue plan funds set aside to bail out banks. Those funds are, of course, paid for by taxpayers and business people like Jeffery Hammerberg.
“You would think with the sponsorship of popular business shows like ‘Your Business’ on MSNBC that American Express was really wanting to help the small business person,” says Hammerberg. “After all, it’s the small business owner who provides over 80 percent of the jobs in this country.” Apparently American Express is forgetting about the very “GOLD” customers that have helped build them.
Jeff Hammerberg, Founder & CEO
Hammerberg & Associates, Inc.