Thus far, it seemed the credit card processing industry was impervious to market conditions. But it seems that streak has come to an end when it comes to credit card giant American Express. AMEX announced today that it will lay off 7,000 workers, or 10% of their headcount. American Express is also putting a freeze on management salary increases and have cut their entertainment expenses.
Income has dropped 8.7%, the biggest drop since 1947, and Americans have slowed down spending on everything from cars to appliances. American Express typically charges absorbent fees to merchants to begin with – in some cases double and triple that of Discover, Visa, or MasterCard. So how can they be in trouble?
American Express may have stabbed itself in the foot with card holders and merchants alike. AMEX cardholders are seeing their spending limits reduced because of where they live, where they shop, and which institution holds their mortgage. This to me sounds like discrimination as opposed risk control. It is for these reasons that many are closing their AMEX accounts.
When reducing credit limits to card holders, AMEX sends a form letter that states:
“Our credit experience with customers who have made purchases at establishments where you have recently used your card…”
“Our analysis of the credit risk associated with customers who have residential loans with the creditor indicated in your credit report…”
AMEX may be reassessing card holder risk, but they are losing money by making it harder for card holders to use their cards. Many business owners rely on AMEX cards to fund travel costs and other company expenses. If their limits are lowered, and cards are being shut off, small business owners will have to begin laying off employees and downsizing operations. I am surprised imposing this type of card holder discrimination is not illegal.