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While signing up for credit cards to earn points and miles and travel for free is a strictly and unequivocally legal activity, many of the behaviors we engage in look sinister in the wrong context. If your friends and family seem a little uneasy when you talk about opening 10 cards in a year, they're not alone.
Banks frown on this behavior as well because criminals do the same thing. There's even a name for it — "bust out fraud" — to describe the act of quickly opening multiple lines of credit (which we do), racking up large bills, and then disappearing or failing to pay them (which we obviously don't).
While card issuers have instituted rules to limit credit card churning and attract valuable long-term customers instead (think Chase's 5/24 rule), much of the tension between award travelers and the big banks comes because (on paper at least), we fit the same template as criminals.
Each card issuer has a different way of handling this. Chase has been known to shut down all of the card accounts of people it suspects of fraud, with no warning and no recourse, but American Express takes a slightly different approach. If your activity triggers a fraud alert, Amex may decide to place your account under "financial review." This can be a nerve-wracking process, and today we're going to get an inside look at what it entails and what you may be able to do to avoid it altogether.
This post is based on the firsthand experiences of a number of serious travel rewards experts who've all lived through an Amex financial review and come out the other side. They asked to remain anonymous given the sensitive nature of this topic but provided me with enough documentation to verify their stories.
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What Triggers A Review?
This is by no means an exhaustive list, as Amex obviously doesn't publish the details of its fraud detection algorithm. However, one of the most common causes of a financial review appears to be a rapid ramp-up in spending. If you've been a cardholder for a few years routinely spending $2,000 a month on your card, and all of a sudden, you begin to spend $15,000-$20,000 a month, you might trigger a review.
Another common and easy-to-avoid cause is cycling your credit limit. Cycling refers to the act of maxing out your available credit limit, paying off your card, and repeating the process during a single billing statement. One of the people I spoke to believes that his first review came from cycling on one of the Amex Blue Cash cards a little too much. The card had a $3,000 credit limit, and he was charging $50,000+ each month to the card.
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Sometimes perfectly innocent behavior might unintentionally flag your account. A friend of mine, let's call him Joe, made a purchase on his American Express® Gold Card. This was the only purchase he made all month, and after his statement closed, he decided to return the item and get the it refunded. So if he made a $100 purchase, his billing statement ended with him owing Amex $100. The refund brought the balance on his card back to $0 and functioned as his "payment" for the month, but somehow the act of him going from a $100 statement balance to a $0 balance without issuing a payment himself tripped the fraud sensors. As we'll see later, this was a relatively simple case and his financial review experience ended up being the easiest of all.
A few other interesting behaviors that have been reported to trigger financial reviews include having a payment bounce to one of your Amex cards (always make sure you have sufficient funds in your account!) and overusing the "check spending power" tool that Amex cards have.
Of course, for every story of a financial review like this, there are hundreds of people who spend large amounts on their Amex cards and never run into any problems, myself included. High spending doesn't guarantee a review, but acts like rapidly increasing your spending and cycling your credit limit can certainly trigger it.
It's also quite likely that Amex will be tightening its standards and putting more accounts through the financial review process due to the current recession. With banks predicting massive increases in defaults in the coming months, eliminating risky customers is even more important than ever. Behavior that might've been acceptable last year could easily end up triggering a financial review now, but as you'll see, that's not necessarily something to be worried about.
The Review
For most people, the first indication that their account is under review will come when they use their card and it gets declined. During the review, your charging privileges will be suspended. You won't be able to use your Amex cards (I've also heard instances of people being given a $1,000 credit limit during the review).
When you log in to the Amex app or website, you'll notice a red triangle alerting you that charging has been suspended and directing you to call a number.
You'll also receive an email from Amex with a little more information, confirming your account is under review and advising you that your account may be closed if you fail to provide the documents Amex requests.
You can call Amex at the number listed on the app or the back of your card; any customer service agent will redirect you to the financial review department. As you can see above, "Joe" was given 14 days to contact Amex and provide all requested documentation, so make sure not to wait around.
This is where cases start to diverge based on individual circ*mstances, but in most cases, Amex will ask you to fill out a form 4506T, which authorizes Amex to retrieve your tax information from the IRS. The first person I spoke to, who has survived a total of four financial reviews (two each for him and his wife), explained that Amex would take the adjusted gross income (AGI) on your tax return and use it to reevaluate your credit card application in place of the income you put. If you were honest about your income, as you always should be, this shouldn't create any problems at all. If you weren't, and your AGI is significantly lower than the income you listed on your application, Amex may reduce your credit limit or close some or all of your accounts. In this way, he explained to me, the financial review process is really more about income verification than anything else.
"Joe" had it a bit easier, likely because his case was more about system error than anything he did. Amex asked him to provide bank statements for two different banks, including the one he uses to pay his credit cards. For those worried about privacy, this is a much less invasive process than giving Amex access to your complete tax return.
Do I Have To Comply?
Your tax return is a very personal document and there are plenty of reasons you might not want it to be seen by anyone other than the IRS. Amex cannot compel you to produce documents during your financial review, but understand that you can expect your accounts to be closed if you don't comply with their requests.
Your Membership Rewards points will also be frozen during the financial review, meaning you can't transfer them to airlines or hotels or redeem them through Amex Travel. That might be enough incentive to comply with Amex's requests, as account closure will lead to you forfeiting your points.
Bottom Line
Sometimes the appearance of impropriety is enough to get you in trouble, which is why it's important to understand some of the red flags that can trigger a financial review from Amex. At the end of the day, you might not be able to avoid this if your business (and business spending) grow rapidly from one month to the next, but let this serve as a reminder to always be honest on your credit card applications.
You never know when those documents may need to be revisited down the road. If you do experience a financial review, remember to stay calm and act quickly. Amex isn't looking to punish you for using travel rewards efficiently; the issuer is simply trying to make sure you can afford to pay back the charges you're making.
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.
