American Express Company (NYSE:AXP) To Increase Annual Rates
American Express Company (NYSE:AXP) is once again increasing annual rates on more than one million credit cards, reported Bloomberg. The company had about 42.6 million of its basic cards in circulation at the end of 2014 and hence the recent announcement affects only a fraction of that total.
American Express has sent letters to affected customers, noting that they pay less than cardholders with “similar” credit reports at other companies. The AmEx cardholders will now be required to pay a minimum of 12.99% in annual rates, suggesting an average increase of 2.5%. According to Bankrate.com data, the industry average was 15.76% last week on variable credit cards.
Elizabeth Crosta, American Express Company (NYSE:AXP) spokeswoman, said rate changes are a normal part of business and the recent increase will affect a number of variable-rate products, including some of the proprietary and co-brand credit cards. She told Bloomberg that the increase will affect balance transfers and new purchases, and they are almost at par with a new AmEx card, if consumers apply today.
Oliver Ireland, a former Federal Reserve lawyer, said such increases have become “uncommon” at major U.S. lenders. Ireland, who was monitoring industry practices, staid that banks typically make such changes in response to change in interest rates or risk.
American Express Company (NYSE:AXP)’s planned increase could be a move to recover its lost revenue as it is ending the co-brand credit-card agreement with Costco Wholesale Corporation (NASDAQ:COST). The deal was contributing 20% of AmEx’s loans and 8% of spending.
More recently, the company also lost an antitrust lawsuit over whether it could stop merchants from advising customers to use other credit cards, particularly Visa and Mastercard, which typically charge lower fees to merchants that accept their credit cards. This means that shops and restaurants are free to ask consumers to use other cards.
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