Credit cards cancelled without warning

April 17, 2009 7:48:32 PM PDT
The fact that interest rates are going up is a common topic of conversation. But, many people cannot count on even having a credit card.

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Many people are asking the same question these days; "Taxpayers have given a lot of money to the banks to free up credit. So, why are they cancelling my credit? "

Good customers say it damages their FICO scores even when they have done nothing wrong.

Paul Kaye does leave home without his American Express card these days. That is because he does not have one. American Express cancelled his account after 10 years and they cancelled it without warning.

"I was out at dinner with some friends and some business associates and I was paying and I tried to use my card and it was rejected," Kaye said. "I thought oh God, that's embarrassing. 'Sorry guys.'"

He figured it was all a big mistake. After all, he only had a $67 balance, no late payments and a golden 750 credit score. But, none of that seemed to matter to American Express.

"They said, 'Well, because we've determined that you're a credit risk," Kaye recalled.

What was worse is Paul says losing his card put a big dent in his credit score, which in turn put a big dent in his plans to refinance his house.

"So, it's upsetting. And, I was always a very good customer to them," Kaye said. "The credit card companies can kind of run willy-nilly and they can do whatever they want. They can cancel your card. They can raise your interest rates."

Joe Ridout with Consumer Action says millions of people are feeling the same pinch, higher rates and less credit.

"So many very responsible borrowers have been caught up in this dragnet as banks try to identify who's a greater or lesser credit risk, that we're seeing probably millions of cardholders suffering through no fault of their own," he said.

American express dumped him and many other customers right after it accepted a $3 billion government bailout. American Express even turned itself into a bank so it could qualify for TARP funds.

"Rather than making lending easier they've made it more difficult by cancelling people's cards, by paying people to go away," Kaye said. "Isn't it ironic. I pay a lot in taxes and the more I pay the more I seem to be penalized."

American Express even offered many of its customers $300 each if they would close their accounts. The company would not say how many customers were cancelled.

American Express told 7 on Your Side, "We are being more targeted in terms of managing risk prudently. It is important to give credit-worthy card members the capacity to increase their spending and share of wallet with us. It is equally important to reduce our exposure to card members whose credit profile has worsened."

The company said TARP funds are intended to "increase our ability to make credit available to our customers. With that said, we do have to continue to make good credit decisions and manage risk prudently."

American Express would not discuss Kaye's case specifically and did not agree to restore his credit card. It never even offered him the $300 to go away.

"They just cancelled," Kaye said laughingly. "$300 would have been nice."

Not much can be done when a credit card is cancelled. Consumers can ask credit card issuers to reconsider or try to get another credit card, but should be careful, because applying for too many credit cards too often can damage a credit score.

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