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By LINDA LEATHERDALE
Here’s a surefire sign our economic woes are getting worse.
Amid a growing credit crunch that’s crippling the world’s financial system pushing bankruptcies and loan defaults ever higher, American Express is offering its U.S. clients US$300 to pay off their balances and close out their accounts.
A spokesperson for American Express Canada said no similar buyout plan is being considered in Canada, where credit card delinquency rates are on rise, but nowhere the level of the United States.
Still, some experts warn if more jobs are lost – a growing number of Canadian households, struggling with record household debt $1.3 trillion, will default on payments. And that could spark rescue plans similar to the AmEx plan, to get the most destitute wiped from the books.
Latest stats estimate Canadian families owe $70 billion in credit card debt, with an average of 4.1 cards in every wallet. A credit card is considered in default when unpaid balances exceed 30 days.
American Express, considered the credit card company for the wealthy, at one time only charged an annual membership fee for the privilege of holding its card. No interest was charged since cardholders were expected to clear off balances when they came due.
But, with the explosion of our borrow now, pay later world – AmEx too ventured into the riskier mid-tier market.
By year-end 2008, its fourth-quarter profit plunged 72% to US$238 million from $858 million a year ago. Its profit for its U.S. Card Services division fell to $4 million from $7 million a year ago. AmEx announced it was taking a pre-tax charge of US$440 million to raise worldwide lending reserves to 100% of past-due loans and increase reserves related to its credit card portfolio.
“We are looking at different ways that we can manage credit risk based on the customer’s overall credit profile,” said an American Express spokesperson, who explained the offer of a US$300 pre-paid American Express card was sent to a select number of clients, who have until the end of February to pay off balances and close their accounts by March or April…
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