A very popular question from readers these days is if they should take up credit card companies on their offer to apply for payment relief during the COVID19 period.
Many people have been caught off guard by the current situation and even those who usually pay all their bills on time might find themselves short during these months.
Now several credit card companies are offering their customers to work with them and provide some relief during these difficult times but one should always take such offers with a grain of salt.
For example I got this offer via email (not sure why they sent me this, there isn’t even a balance or spend on this card):
American Express also offers customers to contact them to discuss options during Covid19.
This matter was discussed this week in one of the American Express social media groups I participate in.
Interesting and dangerous detail: Apparently Amex will freeze ALL accounts of the card member while the relief program is ongoing and only gives the accounts free when everything is paid off. They also offer this relief for only two months.
I consider this dangerous because someone who already might be in trouble with paying daily expenses at this given moment could find himself with all Amex accounts being unavailable for the foreseeable future. This could have a severe impact on people of getting through the month for the time to come.
It’s not too far from reality that I imagine a bank to severely cut back the credit limits of a customer that participates in this relief program.
To participate in this just to save two months of interest on an existing balance could be a very short sighted decision if it means pretty much the end of that account for the time being.
Financial institutions are likely to cut down on lending even though the government will provide them with cheap money, hence new credit cards might become more difficult to be approved for and maybe the previously generous credit limits will be cut down.
Nobody should enroll in these relief programs without being completely informed about the effect this will have on their accounts. The lowering of credit limits doesn’t really have to be disclosed because the bank can do so at any time without providing a reason for their decision.
The last financial crisis resulted in a lot of payment defaults and banks lost plenty of money due to this. Something tells me that these programs aren’t really an effort to help consumers in trouble but more so to sniff out accounts that could be a problem in the future and to cut them down before they are maxed out. Giving someone two months of free interest which is really not a cost for the bank is a smart way of eliminating risks.
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