Sunday, 1 March 2009

AmEx cancelled my card. Now what should I do?

A week ago today I reported on the announcement by American Express of new terms effective 2 April 2009 for personal AmEx cards issued in the USA, under which, in order to obtain or retain an AmEx card, you will have to "agree" that AmEx has your "consent" to send a lifetime of robocalls and SMS text message spam to any phone number you ever use to contact AmEx: hotel phone numbers, pay phones, phones at the homes or offices of friends or family members or business associates, borrowed phones, cell phones, you name it. That's not a risk I can afford to take, or that you should take.

My article was published on Sunday. By Thursday morning, after a couple of exchanges of e-mail (posted in full in the comments to my original article) with AmEx's V.P. for Public Relations, AmEx had cancelled my card and closed the account I've had with them for the last 20 years. (When I called them and specifically asked for it, they said they would send me a refund check for the annual fee I had already paid. I don't yet know what, if anything, they'll tell the credit bureaus about their reasons for closing my account.)

I'm not alone: AmEx and other credit card issuers have been cancelling lots of cards lately, for lots of reasons -- or no reason at all. Under their standard terms, they don't need to have, or disclose, any reason to cancel your card or close your account at any time. (Yes, even if you've paid all your bills on time, and even if you are in the middle of a long trip abroad. This guy had his AmEx card cancelled in the middle of his honeymoon, for example.)

So what happened to me? What should you do if you have an AmEx card? What should you do if your AmEx or other card is cancelled? And, most important, which are the best cards, and what's the best strategy for using them, for an international traveller?

Here's my advice:

If you have an AmEx personal charge card issued in the USA, I strongly recommend that you cancel it and close your account immediately, before these new terms go into effect. Not because they cancelled my card -- I hadn't used it in more than a year, only retained it as a backup for emergencies, and had debated whether it was still worth the annual fee -- but because these new terms place AmEx cardholders in serious danger of privacy invasion, identity theft, and liability to third parties who might get harassed by AmEx after you've called AmEx from their phones.

More on what AmEx has done, what it means, and what other card choices are best for international travellers:

For what it's worth, mine was a traditional green personal AmEx charge card, not one of their newer credit cards. I don't know if AmEx has tried, or will try, to impose similar terms on corporate cards, other types of cards, or cardholders in other countries. In Canada and the European Union these terms probably wouldn't be legal. I've heard from one corporate AmEx cardholder who was told by their corporation that no such terms applied to their corporate card. But terms may vary from corporation to corporation -- big companies can actually negotiate with AmEx, unlike individuals -- so I recommend that you check on the terms applicable to your specific corporate AmEx card. I'd be interested to know what you find out.

Despite specifically asking that my report be forwarded to AmEx's Chief Privacy Officer and the person(s) responsible for reports of privacy and security vulnerabilities and potential breaches, the only response I got (other than a message from AmEx customer service that they had cancelled my card) was from the p.r. department. And they never seemed to treat the issues I raised as anything more than a p.r. problem. That's AmEx's standard operating procedure, apparently: last December, AmEx told another reporter that, "Security researchers who discover vulnerabilities on Amex's site may report them by contacting a member of the company's PR team."

It's particularly ironic that AmEx wouldn't take me seriously, since some of AmEx's own lawyers have previously cited me in their filings with government regulators (see page 7, numbered as 6, in the PDF document) as an authority on risks and protections for travellers who use credit or charge cards.

And it's indicative of the gap between reputation and reality that the first card-issuing company I know of to try to impose such terms on cardholders is the one that for the last three years in a row has been found in annual surveys to be the "Most Trusted Company for Privacy" in the USA.

What AmEx has done in this case highlights two common problems people face, as individual consumers, in dealing with travel and other companies:

First, the law imagines that you have an "agreement" with a company like AmEx, whose terms and conditions are the result of "negotiations" between equals in the open market. In reality, you have only a handful of choices of companies to deal with for many products or services. AmEx, Visa, Mastercard, and who else, really, in this case? How many times have you been in a place while travelling where there was only one ATM in town? Their terms and conditions aren't subject to negotiation, but are offered on a "take it or leave it" basis. Unless, perhaps, you are a large organization with tens of thousands of employees, your only alternative is to take your business elsewhere, if there is an elsewhere, or not to buy that type of product or service at all. That's not a truly free choice, and in such cases of monopoly or oligopoly should be treated by the courts as an "agreement" entered into and "accepted" under a sort of commercial duress.

Second, privacy policies are almost never, in the USA, part of the actual terms of the contract. Typical terms and conditions contain a clause that they contain "the entirety of the agreement between the parties", while the privacy policy is a separate document. I've never seen a separate privacy policy that explicitly provided that it took precedence over contrary terms in other parts of the terms and conditions (which is what AmEx's p.r. director seemed to be trying to claim in some of her comments to me). In some cases, you might make a claim that announcing a privacy policy that one doesn't follow amounts to fraud, and is actionable under truth-in-advertising statutes. But that is fundamentally different from terms enforceable as part of the contract. The first test of a meaningful privacy policy is that it either be included directly in, or be explicitly incorporated by reference into, the contract terms. A privacy policy not part of a contract should be dismissed out of hand as mere propaganda. "If you mean it, put it in the contract", should be a basic, non-negotiable consumer demand of any company that wants its privacy promises to be credible.

That said, AmEx can, and does, cancel cards and close accounts at will, as do other card issuers. They don't have to tell you when they cancel your card (unless they specifically promised to do so in their terms), and even if they try to notify you, there's a good chance you won't get the notice if you are travelling. Most likely, you'll find out your card has been cancelled only when you try to use it and the charge is declined.

None of this used to be common, but now it is, with the transformation of lenders' attitudes toward credit. Tens of milions of credit and charge cards of all types have been cancelled by issuers in recent months. Your Visa, AmEx, or Mastercard can be cancelled because you haven't used it enough, or because you've used it too much, or because you've used it in what the card issuer has decided are the "wrong" places or to buy things from what the card issuer has decided are the "wrong" merchants. Your cards probably will be cancelled (or may already have been cancelled) if you haven't used them for a year or more -- which can be a problem if you had a particular card set aside as an emergency backup.

So what can you do?

  • Carry several cards, of different types. In particular, try to have at least one Visa and one Mastercard with you on an international trip, as it's fairly common to find a hotel or other business abroad that accepts one or the other, but not both, or accepts the other only with high fees.

  • Have a separate ATM/debit card for getting cash from ATM's, and charge card for making purchases. If you use a credit card at an ATM, it's considered a cash advance, and you'll typically be charged a minimum of 3% or 1 month's interest. On the other hand, if you make purchases with a debit card (rather than a credit card), the money is taken out of your bank account immediately, and you lose the right you have with a credit card purchase to dispute the charge if you don't get what you pay for or the amount of the charge is wrong. "chargebacks" are your most important credit card consumer protection, and sometimes necessary in cases of either fraud or innocent but large mistake. Don't forfeit that right by using a debit card for purchases. Use a debit card only for ATM withdrawals.

  • Use each of your cards every few months for at least a small purchase. It's hard to know what usage pattern is least likely to get your cards cancelled, but complete non-use for many months will almost certainly get your card revoked by the issuer. If you haven't used some of your cards in a while, call the issuing bank before you take them on a trip, to make sure they are still valid. After my AmEx card was cancelled, I checked and found that one of my other cards had been cancelled for non-use a few months ago, without notice.

  • Expect to use your ATM card as your primary means of access to local currency abroad, but always have a backup. Especially in an out-of-the-way place with only one bank or ATM (or only one that accepts cards issued outside the country), all kinds of unexpected complications can make it impossible to rely on an ATM card for all your expenses. Most ATM's only dispense local currency, and some tourist businesses (hotels, tour operators, airlines, consulates and embassies for visa fees, admissions to some museums and national parks, even railroads in some countries if you have a foriegn passport) won't accept local currency, but require payment in "hard" currency like dollars or Euros. I was in two countries in Africa last year where, so far as I could tell, there were no ATM's anywhere. And what if you lose your ATM card, have it stolen, or ruin it by leaving it in your clothes when you put them a washing machine and dryer? How long would it take to get a replacement card, and what would you do in the meantime? Some card issuers will only send a replacement to your address in the USA, which could delay things even longer while you arrange for someone to forward your new card to you abroad.

  • Keep a cushion of cash. I always try to have enough, divided up and well hidden, for a week's expenses. Always have some hard currency, for expenses that might require it, as well as local currency. U.S. dollars will almost always do, although occasionally Euros will be more useful even outside the Euro zone. (No other currency is generally worth bothering to carry on a world tour, unless you are spending a lot of time in a particular country where you will need it. No, not even Pounds Sterling -- sorry, Brits.)

  • Keep a larger emergency reserve of travellers' checks sufficient for a couple of weeks. Depite my other issues with AmEx, I continue to recommend AmEx travellers' checks as by far the most widely accepted brand worldwide. (Thomas Cook checks are the next best, while Visa brand checks are much less widely accepted.) There are big problems with forged AmEx travellers' checks, so expect yours to be scrutinized closely when you cash them. All travellers' checks have gotten harder and harder to cash, even at banks, and are typically subject to substantial encashment fees.But they remain the safest way to carry a large amount of emergency money. And because they can be replaced (eventually) if lost or stolen, you don't have to carry them on your person with your other valuables. Carry your travellers' checks separately, so you'll still have them if everything else including your ATM and credit cards are stolen from your money belt or hidden pouch or secret pocket.

In an emergency, what counts is a high enough credit limit that after an accident or road collision you can charge your treatment at a private hospital and a business-class ticket home if your injuries won't let you bend your leg. (I've known several people to need this, including my travelling companion once.) But for day-to-day use, which cards are best for international travellers?

Cards that earn frequent flyer mileage aren't necessarily best, especially if they have an annual fee. You have to do the math to figure out the real value of the points. For example, if you charge $25,000 a year on your card, earn 25,000 points, and use them for a ticket that would otherwise cost you $300, and the card has a $50 annual fee, that works out to the equivalent of a 1% cash rebate. If you use the same 25,000 points a year for a ticket that would otherwise have cost you $550, with a $50 annual fee, it amounts to a 2% rebate. Unfortunately, most airline mileage-plan credit cards have foreign currency fees of 3% or more, and annual fees.

For travel in the USA, where currency exchange fees aren't a factor, one of the best mileage deals is the Amtrak Guest Rewards Mastercard . It has no annual fee, and the value of the points works out to about a 2.5-3% rebate if you use them for Amtrak travel on the Northeast Corridor, the California Corridors, or certain Midwest routes. But it's issued by Chase, with Chase's typical 3% fee for foreign transactions.

For use abroad, the most significant factor in credit card choice is probably the card issuer's fees for foreign currency transactions. Visa and Mastercard charge issuing banks 1% above the wholesale ("interbank") exchange rate, but most banks add an additional percentage fee (for which, it should be noted, they do no work and provide no services -- Visa or Mastercard does the currency conversion for their fixed 1%). Some of the largest Visa and Mastercard issuers have the highest fees for foreign currency transactions. Bank of America, Chase, and Wells Fargo, for example, charge most cardholders an additional 3%. That's enough to override any advantages of most rebate or mileage-points cards.

The good news about the ongoing class action lawsuit about hidden foreign currency fees for card usage is that, while cardholders still haven't seen any money from the proposed (and in my opinion inadequate) settlement, most card issuers have gotten more honest -- if you ask them specifically -- about their foreign currency transaction fees. But you have to ask, or read all the fine print.

A few credit cards have no fee from the card issuer for foreign currency transactions. (It's unclear, in most such cases, whether that still means you pay the 1% above wholesale to Visa or Mastercard.) Capital One is the only major standalone credit card issuer I know of that doesn't charge an additional fee for foreign transactions. [Update: But I've since discovered to my chagrin that Capital One now has even more outrageous terms and conditions than AmEx.]

You may be able to get a no-fee card from another issuer in conjunction with an integrated money management account with a company like Schwab, Fidelity, or HSBC where you also have a sufficiently large brokerage or retirement account. Despite the problems I had as a result of Schwab Bank's undisclosed corporate sanctions program, they are currently offering Schwab investment accountholders one of the best deals on credit cards, with no foreign currency charges, no annual fee, and a 2% cash rebate. On top of that, they reimburse other banks' fees for using their ATM's. They'll send a replacement card to you, if necessary, by international Fedex at their expense. And they'll call you back, at a number overseas, if you need customer service while you're abroad.

[Update: Schwab Bank is now trying to impose similar terms on their credit cards! Before you activate or use any new card, read all of the fine print in the agreement, which typically isn't sent to you until after your application for a card is approved.]

As AmEx's recent actions make clear, terms and conditions can change at any time. There's a useful Flyertalk wiki page that tries to compile reports of current credit card offerings, but don't act on it without verifying the details directly with the card issuer. Good deals go bad, bad deals can get better, and new ones can appear. Read the fine print before you sign up for any card, and whenever you get a notice of changes.

[Previous: Urgent warning to American Express cardholders ]

[Follow-up: Some other card issuers are imposing similar terms ]

[Follow-up: AmEx continues to spam me ... after closing my account ]

Link | Posted by Edward on Sunday, 1 March 2009, 16:17 ( 4:17 PM) | TrackBack (3)
Comments

AMEX is completely ridiculous! First their policy on calling any phone you call them from and then canceling the cards of those who don't agree.

My only concern: How does the sudden close of a credit card affect your credit rating?

Posted by: Brian, 3 March 2009, 20:00 ( 8:00 PM)

Recommend NOT to use ATM/debit card to purchase merchandise/services. If lost or stolen can be used WITHOUT PIN up to daily withdrawal limit until reported to issuer. Ask bank to set card to act as ATM only; they won't like it, but will do it anyway.

Posted by: Edwin, 3 March 2009, 20:11 ( 8:11 PM)

I received a check from AmEx today for the full amount of the annual fee I had paid in February.

Posted by: Edward Hasbrouck, 6 March 2009, 07:29 ( 7:29 AM)

Thought you might want confirmation of this practice spreading. I received an email that my Paypal credit card has made the same change to terms. I will cancel tomorrow.

Thank you for the heads-up.

Posted by: Cathy, 8 March 2009, 18:49 ( 6:49 PM)

Thanks for this information, Cathy. Can you (or anyone else with a Paypal credit card who has gotten this notice) post or e-mail me what bank issues your Paypal credit card, the exact language in their new terms, and when they took effect or are scheduled to take effect?

Thanks again,
Edward

Posted by: Edward Hasbrouck, 9 March 2009, 09:03 ( 9:03 AM)

Here is the bulk of the email I received:

IMPORTANT SUPPLEMENT TO YOUR PAYPAL PLUS MASTERCARD ACCOUNT AGREEMENT

The following provision is being added to your PayPal Plus MasterCard account agreement:

You agree that GE Money Bank and any other owner or servicer of your account may contact you about your account using any contact information or cell phone numbers you provide (whether previously provided or provided in the future).

You expressly agree to the use of any automatic telephone dialing system and/or artificial or prerecorded voice when contacting you, even if you are charged for the call under your phone plan.

The above provision will become part of your account agreement if you consent to the provision by (i) using your account more than 15 days after this notice is delivered to you or (ii) keeping your account open after March 15, 2009.

If you do either of these things, we will conclude that you have consented to being contacted on your cell phone in this way. If you do not want to be contacted on your cell phone in this way, you may call us at 866-630-2763 at any time.

Note: This email was sent to you by GE Money Bank's PayPal Plus MasterCard Credit Services division to provide important account servicing information regarding your PayPal Plus MasterCard. You may receive account servicing emails even if you have requested not to receive marketing offers by email for your PayPal Plus MasterCard Account. GE Money Bank is located at 4246 South Riverboat Rd, Suite 200, Salt Lake City, Utah, 84123, USA.

This is an unmonitored email box. Please do not reply to this email.

Posted by: Cathy, 9 March 2009, 15:28 ( 3:28 PM)

It seems that big brother is getting bigger and bigger.Credit Cards are convenient, but the amount the loss of privacy that occurs with the useage of them is scary.

Posted by: Mike, 29 July 2010, 15:15 ( 3:15 PM)

They cut my credit in half and I owed them nothing! I don't understand the thought process over at American Express as of late.

Posted by: Ryan Stock, 16 August 2010, 20:14 ( 8:14 PM)

It will be great just to look for credit cards companies that won't be changing their policies in years to come.

Posted by: , 26 August 2010, 01:40 ( 1:40 AM)
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