American Express to Fix Late-Payment Policy

American Express is changing a controversial and worrisome policy on "past due" dates, a representative said Tuesday after the release of a CardHub.com Late Payment Policy Study.

American Express ( AXP) customers shouldn't take it for granted, though.

They may be in for a shock when checking their late-payment status after missing a due date. I was certainly shocked a few weeks ago, when I realized I had missed the deadline on a payment by a few days but saw my status read "30-plus days past due."

When I called to report the error, though, I was told it was not a mistake. Because of this, CardHub.com decided to investigate the late-payment policies of the six largest credit card issuers. CardHub.com contacted Bank of America ( BAC), Citi ( C), Capital One ( COF), Chase ( JPM) and Discover ( DFS) to compare their answers with American Express' on how late a customer is considered in the following example:

If a credit card bill is generated Aug. 2 and a payment due Aug. 27, how late is a payment considered if not made by Sept. 3, which would be seven days later -- and one day after the next bill is generated?

American Express was the only issuer that would consider a customer 30-plus days past due; all other issuers would consider a customer five-plus days past due.

A representative from American Express' executive consumer relations office confirmed through email correspondence that "A person will be considered 30-plus days past due on both charge card and credit card accounts if they have not made a payment by the time the next bill is generated" (Sept. 2, in the example above).

This aggressive and counterintuitive late payment policy has major implications not only for American Express customers, but for the entire credit industry.

It is out of sync with the industry standard. Since the CARD Act came into effect, regulators, consumers and the media are more alert to inconsistent and aggressive practices such as this. The last thing we need in an already-tight credit market is each issuer defining its own late-payment policy separately.

American Express is also communicating an incorrect message to its customers. American Express customers are being told they are 25 days more past due than they actually are. This is a distressing message for those who know most credit card companies will report customers to credit bureaus as being delinquent once 30 days past due on a payment.

It was also concerning how a premature classification of past-due status would affect the way American Express applies the penalty APR to customer accounts, also triggered by the number of days past due a customer is on a payment.

CardHub.com contacted members of the executive consumer relations and public relations teams at American Express, as well as calling customer service to better understand these policies. Employees seemed just as confused by the policy as we were.

They confirmed the penalty APR is applied to the balance of a customer's account after the customer is 60 days past due. The problem here is that 60 days past due at American Express is really only 30 days past the actual due date for the bill, and what every other issuer in our study would consider 30 days past due. The CARD Act prohibits a credit card company from applying the penalty APR to a customer's balance unless a payment has not been received "within 60 days after the due date for such payment." If American Express was in fact doing what their customer relations representatives said, they would be breaking the law.

This is not the case, an American Express spokeswoman said, and the confusion was due to different "nomenclature." She said:

"'30 days past due' with another issuer may mean '30 days delinquent.' However, where an American Express customer sees '30 days past due,' this refers to the aging of the account and does not mean that the account is 30 days delinquent."

The term "past due" at American Express means how many days past the day the bill was generated, and not how many days past the due date, she said.

There were similar conflicting answers regarding the reporting of delinquency status. The customer relations representatives confirmed that when a customer is 120 days past due based on American Express' definition of past due (which is 90 days past due for other issuers), that customer will be reported to the credit bureaus as being 120 days delinquent. The official spokeswoman, on the other hand, said American Express does not report the number of days a customer is delinquent -- only whether the customer is in collections.

Since the implications of prematurely applying the penalty APR and incorrectly reporting a customer's delinquency status are so serious, I believe the official spokeswoman is probably correct on both accounts. But the fact that they are consistently inflating the number of days past due by 25 days is clearly causing some confusion for their customers and even for their own employees.

To American Express' credit, the spokeswoman said she has raised this issue internally. Even though she characterized our study as "erroneous", she has taken steps to change American Express' past due message from saying an account is 30 days past due when it is really only five days past due to a message that simply says "This account is past due" or "This account is seriously past due."

The number of days past due has a major impact on the affordability of consumers' credit and credit scores. Given the conflicting messages we got, if you are a former or current American Express customer that has been seriously delinquent, you may want to double check that your delinquency status was reported accurately to the credit bureaus and that your APR was not increased based on American Express' aggressive definition of past-due status -- just to be on the safe side.

In the current environment, in which transparent communication with consumers is so important, it is surprising regulators would allow a bank to make up a self-serving definition for an otherwise clearly defined and universally understood term. It is my hope American Express will correct this practice before regulators get involved.

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Odysseas Papadimitriou is founder and chief executive of Evolution Finance, the parent company of Wallet Blog and Card Hub, an online marketplace for credit card offers.