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07-12-2012 05:13 PM
I was hit with a AMEX FR last week.
I've had my Amex Plat Charge since 2002. Always paid in full, never late. I have charged anywhere from absolute zero to around $ 400k a year. My FICO scores have fluctuated from anywhere between 700 and 830.
Recently, I have grown my business somewhat internationally and found that sending monies abroad with Paypal is more convenient, faster, easier, and cheaper than sending SWIFT wire transfers. What's more, FOREX rates are cheaper with AMEX than with you having to pay the banks usury FOREX spreads. So, I did just that - I used Paypal, funded by my AMEX charge card, for my international funds transfers. Obviously, if you ask your suppliers or business partners whether a Paypal payment would be OK, most of them don't know what you are talking about and would likely not accept Paypal payments. So, what I did was I just sent them the monies using Paypal without asking them prior to that, and let them deal with it then. Most of the time, business partners like to see that the funds are there and just set up a Paypal account, and then transfer the funds to whatever their bank accounts are.
If and when my Paypal payment was met with resistance for whatever reason (about 35% of the cases), I just canceled the paypal payment and it got credited back to my AMEX Platinum card, and I then had to just send a SWIFT transfer and bite the SWIFT fees and the weeklong transfer. No harm there, the cancelled Paypal payment did not result in paypal fees.
I guess the problem with AMEX is - and how I got flagged for a financial review - is how AMEX handles Paypal refunds. It appears the way it works is as follows:
1) You send a paypal transfer. The amount reflects on next months' statement balance.
2) If you cancel a paypal transfer, Paypal credits your AMEX card with an instant credit.
So in essence, if you send $10k to paypal today, and then cancel this payment tomorrow, AMEX will keep the $10k charge on the next month's statement, but the refund will be credited to your account the same billing cycle. I'm not sure if that would reduce the amount due by the due date, but if that was the case, it's easy to see why AMEX should be VERY concerned, and very rightfully so. To be honest, this didn't really cross my mind until I tried to figure out why on earth I would be targeted for a financial review.
So I just provided AMEX with my Form 4056-T or whatever it's called, and I was not really concerned as my reported household income roughly matched what was on my 2011 IRS return. So no stress about an AMEX FR - you'll do just fine. AMEX is extending credit to you, and I feel it's their right to verify your income situation, especially if they are affording large lines to you. Fine by me.
There's several things that do leave a bad taste, though:
1) After extending decades and tens of thousands of dollars of credit to you, and never ever having been delinquent on any obligations, is it really necessary to completely suspend any and all charging without warning? I guess it would be more reasonable to just advise you of a spending cap pending the outcome of the FR; but to completely suspend charging seems a little over the top. My wife is traveling abroad as I write this, and her only card was the AMEX plat.
2) Threating account closure to obtain IRS form. I'm fine with a FR. Any time. And I have no problem making my financial information available to AMEX. But: why on earth would AMEX threaten you with closure of the account if you are in full compliance? I don't think people who would not make financical information available would do so when threatened with closure of an account. And, people who will readily share financial information with AMEX will do so regardless of threatened adverse action. All in all, AMEX just lost a little bit of customer service and perception in their customer interaction. It just does not make you feel like you are their valued customer.
3) My line got slashed down to a third of what it used to be. That's fine by me, it will get lifted again eventually. But what I'm not following here is why, when my IRS income matches what I reported to AMEX to start out with, results in a credit limit decrease anyways? So there's quite a few inner AMEX workings left to be understood here.
All together, I still think AMEX should be the preferred card and I will continue to use AMEX. But this FR experience made it very clear that no matter what your take is on AMEX, you should never, ever, solely rely on American Express. Always carry backup.
And, to all the doomsday preachers who offer their expertise on how to close your account by yourself if hit with a financial review, just take a moment to think about how that makes you look. AMEX is your contractual partner extending credit to you, and thus has an inherent interest in your financial situation. My advice here ist that if you do get hit with a F/R, comply, and sail ahead.
07-12-2012 08:31 PM
Can you share the approximate dollar amount of your paypal transfers and also the approximate amounts of the credits ?
07-12-2012 11:24 PM
Well the month I apparently got flagged I sent probably $40k abroad using paypal, of which $11k had to be cancelled. The individual payments were anywhere between 500 USD and $9k. Again, this is a charge card and I do not carry a balance.
07-12-2012 11:27 PM
Oh and the more I think about this - if AMEX simply handled refunds the same way as charges - i.e., impacting the same billing cycle, this would never be an issue.
If you have to cancel a paypal transfer then, the next billing cycles balance will simply not show the paypal charge or the charge would be offset by the credit. This would eliminate AMEX's exposure and risk, and would enable AMEX clients to use paypal safely and securely. Might be something to consider.
07-13-2012 07:30 AM
Yeah, I agree the way you described the process of their credits sounds unusual, and if it is putting them at some financial risk then I could understand the reasoning behind a FR. But like you said it is being PIF every month......
I suspect that there are certain usage patterns and/or transaction limits that probably set off the FR warning bells at AMEX, I guess that this is one of them, as you described.....
07-15-2012 11:46 AM
07-20-2012 09:46 AM
Oh and there is one last thing I think I have now understood: Since cancelled paypal payments NEVER get reflected in the same billing cycle; they also result in membership rewards points.... If you pay 10k to a paypal user today, you'll rack up MR points. If you need to reverse that payment, your MR points will still be there. So, any time you have to cxl a paypal transfer, you are unintentionally screwing Amex out of MR points!!! My advice here clearly is to avoid using Amex with paypal until AMEX has fixed the flaws in their handling paypal transaction cancellations; because even though AMEX provides a flawed system, the blame will still be on you. I'd love to hear how other card companies handle paypal cancellations. I'm not going to find out myself ;-)
Not true...Membership Rewards points are around 2 months behind.