American Express Co., the lender that lost one of its biggest retailer partnerships and suffered a defeat in an antitrust lawsuit this month, is raising interest rates on a swath of credit cards for the first time in more than five years.
AmEx told more than a million customers this month that their annual rates will climb an average of 2.5 percentage points, following a review last year, said people briefed on the move. The firm sent letters saying it’s making adjustments after finding their rates were below those for rival cards held by borrowers “with similar credit profiles,” according to a copy obtained by Bloomberg News.
Such moves have become uncommon at major U.S. lenders. Banks typically make large-scale changes in response to broader shifts in interest rates or risk, said Oliver Ireland, a former Federal Reserve lawyer who monitored industry practices there and is now at Morrison & Foerster LLP. The Fed has kept its benchmark rates near zero since 2008 to spur the economy, and borrower delinquencies dropped to historic lows in that period.
“It says they mispriced that portion of their portfolio,” Ireland said. “There are very few instances of banks doing something like that. I can’t think of any.”
Rate changes are a normal part of business, said Elizabeth Crosta, a company spokeswoman. The planned increases will affect a variety of variable-rate products, including some of the New York-based firm’s proprietary and co-brand credit cards, she said. Rates will apply to new purchases and balance transfers, and they’re no higher than consumers would get today if they apply for a comparable AmEx card, she said. The minimum rate for news customers is 12.99 percent.
“We analyzed our credit-card portfolio last year and found customers that had APRs considerably lower than market rates, sometimes as low at 3.25 percent,” Crosta said. Factors that affect interest rates “change over time, making it appropriate to reassess a customer’s APR,” she said.
Cardholders affected by the review are a fraction of AmEx’s total. It had about 42.6 million of its basic cards in circulation across the U.S. at the end of 2014, according to a company filing.
Source: Bloomberg | Elizabeth Dexheimer