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American Express ending pro-rata fee refunds in the USA from September – UK to follow?

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American Express is having a bad time of things at the moment.  The loss of the Costco contract in the US was a hammer blow to the business (I thoroughly recommend reading the story here) and there has been a drip of other contract losses.  The potential loss of the Starwood Preferred Guest card – which is a big deal in the US – also hangs over it, as Marriott has a long established deal with Visa.

I occasionally get emails from people asking why American Express does pro-rata fee refunds on its cards when you cancel.  The answer, from a friend who worked in card operations in London for a major US bank, is that it is because Amex does this in the US and it needs to standardise policies for accounting reasons.

Amex American Express

American Express is now changing the rules in the US with the following message appearing on statements:

Closing your Account Effective September 1, 2016, in Part 2 of the Cardmember Agreement, we are amending the Closing your Account sub-section in the Other important information section by inserting a new paragraph after the first sentence: If an Annual Membership fee applies, we will refund this fee if you notify us that you are voluntarily closing your Account within 30 days of the Closing Date of the billing statement on which that fee appears. For cancellations after this 30 day period, the Annual Membership fee is non-refundable. If an Annual Membership fee applies to your Account, it is shown on page 1 and page 2 of Part 1 of the Cardmember Agreement. 

You can see why it would do this.  Let’s imagine that Amex earns, in the UK, £25m per year from annual fees.  At any point in time, 50% of that revenue is at risk of being refunded and so it cannot be treated as income.

Switching, overnight, to a system which did not allow refunds would immediately add £12.5m of profit.  I have no idea what the US number would be but it would be many times larger.  It is a tempting target for a CEO who is now under threat of takeover and who is desperate to make his numbers look good.

There is no certainty that the same rules will apply here.  However, if the only reason it didn’t already happen here is that Amex wanted its global accounting policies to match, it may well be on the way.

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Disclaimer: Head for Points is a journalistic website. Nothing here should be construed as financial advice, and it is your own responsibility to ensure that any product is right for your circumstances. Recommendations are based primarily on the ability to earn miles and points and do not consider interest rates, service levels or any impact on your credit history.  By recommending credit cards on this site, I am – technically – acting as a credit broker.  Robert Burgess, trading as Head for Points, is regulated and authorised by the Financial Conduct Authority to act as a credit broker.

Comments (63)

  • John says:

    If it happens, then there is no more reason to try and spend 15k on the Gold charge and keep it for an extra month to get 10k MR (previously 7.5k)

    This reminds me I need to refer my wife and cancel mine :p

    • harry says:

      Not really the case IMV. Amex pay you the 10K bonus very promptly and as per the story above, you get 30 days to request a refund of the fee etc

      I think you’ll often have plenty of time to bank the bonus and then cancel the card for a refund.

  • Matt says:

    Eliminating pro-rata refunds won’t make any difference to their current earnings – membership fees will still have to be classified as unearned revenue under US GAAP since the costs associated with those revenues have not been incurred. That said, it will probably make last year’s deferred revenues look a little better…

    • Genghis says:

      I was just going to say – accounting is unaffected but cash flow is a bit more certain.

  • Danksy says:

    I can see this is a risk, but not for the accounting reasons that you cite !

    Income recognition has books written on it, they AMEX would not be allowed to recognise future income from their card base – it’s not allowable!

    However investors maytake their own punt on what the income could be and may use numbers of cardholders to make their own assumptions; thus if they take a pessimistic view currently (due to refunds) that they think may improve it may create a favourable blip in stock prices.

    The real opportunity is to either drive spend per card or to reduce the costs per card. I’d suggest cutting benefits (costs) to around the same level or lower than the price they charge of the benefits ..or conversely raising overall income is a more likely scenario (removing cancellation fees raises income per card).

  • Neil says:

    With all these challenges faced by Amex I’m hoping they’ll end their life long blacklisting. Due to an incursion with them in my student days they still decline my applications but now I’m a reformed character!

    • Brian says:


      I’m not sure this is true. When I was i my early 20s I proudly got an Amex Platinum Chargecard. Overspent a couple of months and had the card ‘removed’ for frivolous spending!

      Fifteen years later I’ve now got 2 AMEX cards and am a bit better at paying on time 😉
      Not sure about this life long blacklisting you talk of. Do you know it for fact?

      • John says:

        If he’s still getting declined, then it seems like a fact.

        Did they really call your spending ‘frivolous’ or did you just not pay the bill?

        I also got an Amex in my early 20s and spent way more than my declared income… but it was all MS so had no problems paying 🙂

      • Danksy says:

        I ended up with a recurrent card charge that ‘hit’ after I closed my account and moved home.. A £45 charge ended up costing me nearly £600 as they couldn’t bill me (since I’d moved).

        They sold my debt on and I settled it in full eventually. This was 10 years ago and since then I must have had 10 cards!

  • Tangey says:

    Amex standardising policies across markets doesn’t seem to happen. Amex has gone to 1 lifetime signup bonus per card in the USA, but haven’t at least as yet, seen it necessary to do similarly in the uk.

    • Talay says:

      USA bonuses are often substantially higher than the UK though. I have often seen over 100k miles or points on offer whereas we make do with a quarter or a third of that at best.

  • Andrew (@andrewseftel) says:

    Would someone like to give me an accountancy lesson and explain why Amex can’t just take the fee revenue and provision against refunds based on a fair estimate of incidence? I would have thought you’d then be able to recognise the majority of the fee on the P&L on day 1.

    • Genghis says:

      I’m more knowledgeable of IFRS than US GAAP (which Amex reports under) but it is all to do with the matching concept – i.e. matching revenue with expenses. The payment of £195 for a BAPP does not in itself relate to the transfer of a specific service to the customer. It is the ongoing use of the BAPP that the customer has ‘bought’ such that revenue is recognised over the life of the contract (12 months), thus matching any expenses associated with the card (e.g. any insurance benefit etc).

    • Danksy says:

      The cash is recognised as day one (it’s an asset)
      Income hasn’t been earned (since it spans a future period of time)

      • Genghis says:

        Indeed. Initially debit cash, credit deferred income then over the year (most likely on straight line basis) unwind the deferred income (debit deferred income, credit revenue)

  • Tony says:

    OK so where do I get one of those cool vintage Amex cards from?

  • Alan says:

    I’m not sure I but the standardisation argument – if so then can we please have fee-free forex fees as they have there? 🙂

    Also the revised T&Cs sound like you have 30 days from when the fee posts to cancel and get a refund, so hit that spend target very quickly and you could still be OK (unless they change the rules for when bonus points post too)