Amex entices cardholders to close their card

American Express is paying to get rid of customers whom the card issuer used to lure them with cash rewards. The company is enticing selected cardholders a $300 Amex prepaid gift card if they pay off their balances and close their accounts. The strategy reflects deteriorating credit-card market.

There is growing concern that credit-card defaults will soar into the stratosphere as have been happening with mortgage, which provoked the current economic crisis. Consumer credit card delinquencies jumped to a record 5.6 percent in the fourth quarter 2008 from 4.8 percent in the third quarter.

The concern about growing default ascends as the economic crisis widens and unemployment climbs. Unemployment rate rose to 7.2 percent in December 2008, the highest level in 16 years.

Selected members began receiving letters with the voluntary offer earlier this month, according to Molly Faust, an American Express spokeswoman. Ms. Faust did say that it was offered only to retail credit-card holders, not corporate accounts. Customers who received the offer have until Feb. 28 to respond.

The member’s card will be immediately canceled when the customer submit the RSVP code, came with by letter, online. Members have from March 1 to April 30 to pay off their balances and receive the prepaid card. During that time, the balance is subject to the same interest rates and fees that it would be if they chose to keep their card. If customers don't pay off their balance by April 30, they will not get the gift card and their accounts will still be closed, says Ms. Faust.

As soon as eligible Amex customers sign up for the offer, they lose all Membership Reward points accumulated while they were customers. That means customers should use up their points before agreeing to the offer.

After converting into a bank-holding company late last year, Amex received $3.4 billion from the U.S. Treasury's Troubled Asset Relief Program in exchange for a stake in the company.

Closing a line of credit generally hurts customer credit scores, even if the customers do it themselves.