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April 05, 2005

Really Shitty American Express

I got a notice that my cardholder agreement with American Express has been updated in one very important way today. Previously, with American Express, you had a grace period on new charges whereby interest is not accrued as long as you pay your statement's closing balance by the day it is due. If you had an outstanding balance of $1,000 and had charged $100 more during the next month, you would not pay interest on the $100 of new charges as long as you paid off the $1,000 by the date it was due. Simple, and fair enough.

Now, AmEx charges you interest on the new charges until you pay off your balance in full, unless you have paid your balance in full the two previous months. This may not seem like a big deal, but many cardholders won't read the fine print and understand how this works, which could cost you a lot of money.

Imagine that you had a balance on your card one month and paid half of what was due. You didn't charge anything the next month and planned on paying the other half, plus whatever interest charges had accrued so that you'd be paid in full. Under the old rules, since you were paying off your bill in full, you wouldn't be charged interest on new charges during your current billing statement. If you *assume*, like I would, that you have a grace period, you might agree to charge a large one-time expense that you know you'll pay off right away. Say that your car needs repair so you put a $2,000 charge on your card because you'll have the money at the end of the month.

There are generally about 15 days between when your statement period ends and when the bill is due, so during that 15 days you'd be charged interest on your new $2,000 charge. It might only come out to $10 or so, but imagine instead you charged something very expensive for work because you'd get paid back -- you could be stuck with considerable interest charges.

The point is that American Express (which is one of the good guys of the credit card industry) and the rest of the industry already makes enough money as it is. Congress is signalling that when it comes to consumer protection law, anything goes, and the credit card companies are taking that as a cue to further gouge consumers. I won't go so far as to say never use a credit card, because they are a very convenient way to keep track of your spending, with downloadable billing and one check to write per month instead of whenever you buy something. But use your credit card and try to pay the balance in full each month and every month. That's the only way you won't pay hundreds of dollars extra per year even if you ARE a good customer who follows all of the rules.

And if you're able to join a credit union through work or some other affiliation, by all means do that as well.

Posted by Chris at April 5, 2005 03:54 PM

Comments

1) Please be specific about exactly which AmEx you have, as this may not apply to us Platinum Delta SkyMiles Cardholders.

2) A tip for all: Credit card interest is compounded daily (at a fraction that adds up to your monthly rate). So, if you know that you need to (and can) pay $x/mo to make a dent in your balance, then pay $.5X/2 wks instead. You'll save 14 days interest on every bit of principal you pay down. Make .25x/wk payments if you can.

Posted by: MEM [TypeKey Profile Page] at April 5, 2005 06:36 PM

I agree. American Express has made changes that cost me hundreds of dollars and I pay my balance in full every month. In 4 months, I was charged over $400 in finance charges.

If your payment in full is late by one day (even if your bill is sitting in AMEX's hands and not yet processed) you will be charged interest from the date of purchase for all items purchased in the prior month and the next month.

If you apply the original American Express Agreement to the new charges the following are the approximate annual interest rates that I was charged over the last 4 months:

April 116% (Posted 5 Days Late)
May 172% (Posted 6 Days Late)
June 83% (Balance not paid in full this month)
July 482% (Posted Paid in full - 3 days early)

To make matters even worse, my on-line bank said that AMEX received all of these payments in time.

Please note that these are interest finance charges only - no late fees.

I feel that AMEX should not hide finance changes like these. They should also start putting the finance charges of the front page of the monthly bill next to the minimum amount due so customers will know what they are being charged.

Posted by: Erik [TypeKey Profile Page] at August 17, 2005 05:00 PM

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