How to Settle Your American Express Credit Card Account
[Note: This article originally appeared as a guest post on Steve Rhode’s blog at GetOutofDebt.org. Thanks to Steve for permission to repost here on The ZipDebt Blog.]
If you’re facing a legitimate financial hardship and can’t make the minimum payments on your American Express credit card one potential solution is to negotiate a lump-sum settlement for less the balance owed. If you’re unfamiliar with debt settlement, you’re probably wondering how someone who can’t make their monthly payments would have the funds needed for a settlement at, say, 50% of the total balance. But there is a huge difference between income and assets, and many consumers who can’t sustain regular monthly payments due to lack of income or other financial hardship are able to use some of their dwindling savings for the purpose of settlements. Other sources for funding settlements might include the sale of household items, collections, cash value life insurance policies, borrowing from family, or sale of property. These are one-time funding sources, in other words. Once the money received from a one-time source has been expended, there is no more to replace it. But such funds can be put to excellent use in retiring a major credit card debt, when otherwise the customer would just be facing an unsustainable situation (which in turn often leads to bankruptcy).
When it comes to settlement with American Express, there are some specific facts about this creditor that you should be aware of. Prior to the financial crisis of 2008, American Express was not a bank like most other major credit card issuers (such as Bank of America, JP Morgan Chase, Citibank, etc.). The company converted to a bank holding company structure in November 2008 in order to become eligible for Treasury Department assistance under the infamous “TARP” program. The reason this matters is because there are some important differences that need to be taken into account in terms of the “collection culture” at different types of creditors. For example, most of the major credit card banks eventually SELL their delinquent accounts to various debt purchasing companies, so when you are trying to settle an old charge-off account it’s very possible that you’ll be dealing with a debt purchaser or their collection agency. Yet it’s highly unlikely you will encounter this situation with respect to any type of American Express account. This creditor rarely sells its accounts, no matter how old. It’s simply a part of the collection culture that developed at American Express, which positioned itself over the years as being “different” than Visa or MasterCard.
Why is this relevant if you’re trying to reach a settlement with Amex? Many websites offering advice on settlement of credit card accounts recommend sending “debt validation” notices to collection agencies or creditors, in theory “putting them on notice” that you are aware of your consumer rights and demanding copies of their backup documentation. There are definitely situations where a debt validation letter is appropriate and effective. However, when you are trying to settle an American Express account, it would be a major tactical mistake. The reason is because they have the documentation. It’s trivially easy for an original creditor to produce a stack of monthly statements two inches thick and mail it to you. Voila. Debt validated, and account moved to an in-state legal firm for your troubles!
The first rule in settlement with American Express is therefore to avoid any sort of tactical “games” like debt validation, which are generally unnecessary anyway. I always recommend proactive telephone contact with creditors, and American Express is certainly no exception. Get on the phone a couple of times a month and let them know about your situation. Be aware that you’ll hear various kinds of options presented to you depending on how far behind you are on payments. For example, if you are two payments behind, the representative will generally not discuss settlement yet and will only speak in terms of different payment options. Listen carefully to these proposals and note them down. Sometimes these alternate programs can include low interest rates and lower monthly payments, and for some consumers this level of relief alone may provide sufficient breathing room to get a handle on their financial situation.
If you’re more than three payments late, the odds are good that you’ll be hearing from an outside collection agency. It’s quite common for American Express to assign their accounts to third-party collection agencies well before the point of charge-off at 180 days late, often as early as 90 days late. Don’t panic if this happens! Understand that the majority of settlements with American Express are negotiated through these third-party collection agencies.
Achieving a settlement with any creditor is a matter of balancing RISK versus SAVINGS. You’re in a financial crisis and want to obtain as deep a discount off your balance as possible, but you also have to be mindful of the legal risk that mounts whenever you are behind on payments with a creditor. One important tip for determining the risk factor is to assess WHERE the assigned collection agency is located. If they are not a law firm and they are in some other state than yours, then the situation is low risk compared to assignment to a law firm in your state. American Express is not a “bluff” creditor, so we do take any legal threats from them seriously once a file has escalated to placement with a collection attorney firm (licensed to operate in the client’s home state). In such situations, the risk is greater, so we accept a higher figure than we might otherwise. Where the risk is lower, we can hold out and try to do better on the settlement percentage.
Let’s say you are talking with a third-party agency in a different state and they have agreed to a 40% settlement. You are happy with the result and you can fund the settlement ok. The one unbreakable rule in debt settlement is to GET IT IN WRITING FIRST, before you pay! You must have a letter in-hand before you make payment on your settlement. There are NO exceptions to this rule. A faxed copy is fine, and in fact most settlement letters are just fax copies of the agreement. This isn’t a matter of “trust,” or “distrust.” It’s just simple common sense that any agreement modifying your contract with American Express (or any other creditor) must be in writing. If you have a debt collector balking at putting the settlement in writing, then just put your foot down and insist that you will only proceed on the basis of a written agreement letter. It doesn’t have to be long! It just has to cover the essentials – the account number, amount of settlement to be paid, any payment installments listed clearly with due-dates, and the transaction has to be defined or referred to as a “settlement,” or “settlement-in-full.” Simple enough!
With your letter in hand, then you can make your payment. Cashier’s check by Federal Express is one method, but you want to be sure that you’ve coordinated payment method with the agency. Most of them prefer check-by-phone or electronic check (same thing). This is also called an ACH transaction, and it means you provide them the bank routing number and account number off your checking account. If you have it in writing first, it’s ok to do this. If you are negotiating settlements with multiple creditors, it’s better to set up a special checking account for this purpose. That way you can react quickly in case anything goes amiss.
One more important point about settlements with American Express. Many consumers have both personal and corporate cards issued by this creditor. It’s common to carry a personal account and then receive one issued by your employer, to cover work-related travel expenses, per diem costs, and so on. The corporate cards are generally issued to the corporation itself, even though your name appears on the card, so generally it is not advisable to attempt settlement on this type of account, as it could have a direct effect on your employment status.
Take the high road and negotiate in good faith with your creditors. Don’t play games or make up stories about your situation. If you are in a financial crisis, that is enough, and you just need to be patient and persistent. Start out with an offer around 20-25% of what you owe, but state this in terms of a dollar amount. You are aiming for a financial outcome that you can live with, not a world-record low percentage. As the negotiation proceeds, resist your initial urge to jump your offer right away, and give it some time to see how things go first. You can always increase later. The first offer you receive from an agency will rarely be the best offer available, no matter how convincing the explanation that this is “the best we can do.”
Over time, and with a series of negotiation calls, it’s possible to reach a settlement agreement on your American Express card that you can handle. Don’t be greedy. Once you reach your goal, accept the settlement and take the deal off the table. If you’re like most clients, you’ll feel a tremendous sense of empowerment at achieving a successful settlement. It can be a huge game changer financially, as well emotionally.
UPDATE: August 8, 2016
In the five years since I originally published this article, I’ve received numerous questions and inquiries about negotiating settlements with American Express, and talked to hundreds of consumers who were finding it difficult to reach an agreement even with all the advice I had presented in the article.
A big part of the problem in dealing with American Express is due to two key factors.
(1) They move the file quickly to outside collection agencies compared to other major credit card issuers, and many of those assignments are to in-state law firms.
(2) Their collection law firms often file lawsuits as quickly as 4 months late, so many (if not most) American Express settlement negotiations are taking place with active litigation in play.
While I’ve successfully coached many people to reach settlements with American Express, I am no longer actively recommending the Do-It-Yourself method for dealing with this very difficult creditor. Settlement with Amex requires steel nerves and precision timing, and is best handled via a customized full service approach.
If you are facing a default situation with American Express and would like to have some professional assistance in resolving the matter, please read my 5-part series on Tailored Debt Settlement.