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By Sal Osio, JD

From the Publisher's Corner

May 1, 2009

 

From the Publisher’s Corner

AmEx – The credit card face of greed and abuse

AmEx double crossed the government, the taxpayer and, their own customers

By Sal Osio, JD

American Express converted itself into a chartered bank from the financial services company that they were in late 2008 in order to qualify for the bank stimulus package. They pocketed $3.4 billion in bailout cash from tax payers. The objective of the government was to loosen credit constraints in order to assist the consumer and the businessman whose credit lines were frozen by their lenders.

So what does American Express do after receiving the bailout funds?

In a flash they freeze the credit lines of their cardholders.  Correction: They eliminate the unused credit extensions.

The stated reason?

AmEx hypocritically and falsely informed their aggrieved victims that they had a credit smear. This explanation was blatantly false.

What then is the real reason?

To me it is too obvious. AmEx did not want to carry the unused credit they had committed to as a contingent liability on their balance sheet. This liability increased their need for reserves and reduced their lending/investment leverage. Further, funding the unused portion of their customer card holders credit lines exposed them to the potential risk, the fear, that these ‘loan extensions’ may not be repaid. Mind you, the victims were established clients with immaculate credit and no defaults.

In short,. Greed and abuse – the hallmarks of corporate America – are conclusively evidenced by AmEx’s wanton conduct.

The LA Times and several news media journalists and TV commentators across the land are highlighting the unconscious, blatant abuse. To what end? AmEx literally is crying all the way to the bank, it’s own.

What can we do about it?

Naturally the victimized card holders will not again do business with AmEx. But that is not a sanction against AmEx. They prefer to be the merchant bank they became providing high net worth client services instead of those ‘messy’ customer services. Literally, they want to get rid of the cardholder. Therefore, ceasing to do business with AmEx is a favor to them with no retribution to the cardholder.

In the last issue of HVC, “The Consumer Revolution” suggested one sanction: Massive consumer bankruptcy. If only 1% out of America’s 1 million households filed Ch. 11 bankruptcy, and eliminated its debt, albeit at the expense of the credit card issuers like AmEx, the eliminated gross debt, assuming an average of $50,000 consumer debt per household, would amount to $50 billion. This would enable the American consumer to spend this ‘new found’ money to kick start the economy. It seems to me that this is a better stimulus package, at a small fraction of the cost, than the trillion+ dollar bailout.

What are your thoughts?

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Sal Osio, JD is the Publisher of HispanicVista.com. Contact at SPOsio@aol.com