American Express is raising interest rates for more than a million card customers following a review of “credit profiles” that began a year ago.
AmEx is increasing its annual percentage rates by an average of 2.5 percentage points to align the rates with what it offers currently to customers with similar credit profiles, the company said.
The credit card giant sent letters regarding the rate adjustments after finding that some rates were below those for rival cards held by borrowers “with similar credit profiles,” according to Bloomberg News.
While such actions by credit card providers is not necessarily unusual, banks typically make large-scale modifications on borrowing costs based on broad market shifts in interest rates or risk.
“It says they mispriced that portion of their portfolio,” Oliver Ireland, a former Federal Reserve lawyer and now at Morrison & Foerster LLP, told Bloomberg. “There are very few instances of banks doing something like that. I can’t think of any.”
The annual rate for new customers will be at least 12.99 percent, but some older AmEx customers would continue to have lower rates despite the hike, AmEx spokeswoman Elizabeth Crosta told Reuters.
The proposed raises will affect the company’s variable-rate products, including some of its proprietary and co-brand credit cards, Crosta said.
Earlier this month, AmEx said its earnings would suffer for two years after failing to renew its exclusive deal with Costco. Moreover, a federal judge ruled earlier this month that a longstanding practice by American Express aimed at keeping customers from using other forms of payment violates United States antitrust laws. The ruling was a victory for merchants who had sued AmEx over its allegedly restrictive “swipe fee” policies.