Interest rates on some American Express credit cards will be increasing, according to letters sent out to customers this month.
The rate hikes will affect “a small percentage” of the company’s 55 million U.S. cardholders, who will see an average increase of 2.5 percentage points, said spokesperson Elizabeth Crosta. That number could be well over a million customers, but AmEx declined to provide a specific figure.
“As a normal part of business, we looked at our portfolio,” said Crosta. “We found that we had APRs that were significantly lower than market rates.”
The new APRs will be closer to rates offered for similar products on today’s market, but will be no higher than if a customer applied for a comparable AmEx card today, she said. The changes will not apply to current balances — just new purchases or transfers on the card. Cardholders will have two full billing cycles before the updated rates take hold.
Such rate adjustments were once commonplace, but federal legislation in 2009 implemented strict disclosure rules and discouraged card issuers from making changes, said Gerri Detweiler, director of consumer education for credit.com
“It wasn’t that long ago that issuers were still raising rates on existing balances for no reason other than they could,” she said in an email. “Still, no one wants to think they are being singled out for a rate increase, and this may feel like that to the cardholders who get these letters.”
The changes will have minimal impact for AmEx customers who tend to pay off their cards each month, and a good number of borrowers will ignore the notice, said Detweiler. Matt Schulz, a senior industry analyst at creditcards.com who also carries an AmEx card, agreed.
“I don’t carry a balance, so it won’t bother me much,” he said. “But if you’re somebody who’s got $5,000 or more in debt, raising your interest rates a couple of points is a big deal.”
For customers who tend to build up a balance, it may be worth looking to switching to another card for future purchases, said Schulz. Competition in the market has built as the economy improves, and most issuers are not likely to raise rate soon, he said.
American Express Co. has had a hard year so far. Two weeks ago, the company’s shares dropped on the announcement that its 16-year partnership with Costco Wholesale Corp, which exclusively accepted AmEx cards, was ending.
The company recently lost an anti-trust case, which will allow AmEx-accepting merchants to encourage customers to use other cards. Revenue growth has failed to meet targets and thousands of layoffs are planned for later this year.
“Certainly losing Costco hurts,” said Detweiler. “From a timing perspective, though, it makes sense for AmEx — if they waited until rates started to rise, the rate hike would feel larger.”
AmEx cards are popular for their rewards, and aren’t traditionally among the cards with the lowest rates, said Detweiler.
“The biggest risk is probably with cardholders who feel like the annual fee they pay on their AmEx card should entitle them to a better deal,” she said. “They may defect.”
The first rounds of rate-update letters were sent out last year, and more are still to come this year.