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The standard text of a credit card agreement implies American express can terminate the agreement at any time. Problem is, you already gave credit.

As an example, if I give someone a loan, I can't "take back" the loan. A line of credit is no different from a loan. If a customer has a line of credit of 10k, cashes it out, then Amex closes the card this should be the same as if they receive the credit and then the account closes before they cash it out.

If Amex was never intending to allow it to cash out and instead restricts the card before its ever used, this shows dishonesty.

Because a line of credit is money that is effectively already given to the customer, is it legal for Amex to close an account assuming they have no other legal reason and it's purely capricious behavior?

There was an answer citing a Supreme Court case with the answer no. This was deleted for some reason.

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    I can’t follow your question. What is “cashing out” a credit card? But yes, they can terminate it at any time.
    – SegNerd
    Jan 4 at 5:06
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    "if I give someone a loan, I can't "take back" the loan." Yes you can. That's what distinguishes a loan from a gift. Jan 4 at 5:15
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    Could you clarify - are you asking whether the company can forcibly retrieve the debt due on the card (e.g. by just taking it out of your current account or something), or just whether they can cancel the card (i.e. prevent further use) ?
    – komodosp
    Jan 4 at 9:32
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    @MichaelHall I could terminate the loan contract according to the contract terms, which usually includes the loan becoming liable in full at once.
    – Trish
    Jan 4 at 10:35
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    Jose Garcia: I think we're all a bit confused as to whether you're talking about the authorization to borrow versus money that has actually been borrowed; that is, if you get your credit card with a $1000 limit, are they cancelling it before you bought anything or after you used the card to buy a $1000 wristwatch?
    – phoog
    Jan 4 at 12:18

2 Answers 2

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Is it legal for Amex to close an account assuming they have no other legal reason and it's purely capricious behavior?

Yes. A credit card can indeed terminate a card at any time. A credit limit is not the same as a loan, and is not "money that is effectively already given to the customer."

A line of credit is a invitation to take out a loan, subject to final approval before the card holder finally makes a purchase on credit. The credit card company is entitled to change its mind until the purchase on credit is actually made by the cardholder.

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    "is entitled to change its mind": subject to the terms of the credit agreement. Of course, the agreement having been drafted by the issuer, it won't likely restrict the issuer unnecessarily. (There are surely also restrictions imposed by statute; for example, I assume that they cannot terminate the card solely for reasons of race, religion, and similar protected characteristics, but this sort of thing seems to be beyond the scope of the question.)
    – phoog
    Jan 4 at 12:13
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    Just clarifying @phoog for laymen: Any purchases already made are subject to the same conditions/interest rates as they would otherwise be. The issuer can just decide to discontinue allowing new purchases. Jan 4 at 22:50
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Of course they can do that. I'm sure it is all buried in the-fine-print-that-nobody-reads. But consider a few situations:

Regular Credit Card Usage with Problems

A customer has a credit card with a $10k limit. They routinely borrow a few hundred $ and pay it back on-time. Other times they pay the minimum due each month. No problem.

Then they stop paying anything. One month, no big deal. After a few months, the credit card company may decide to take some steps to make sure they (a) collect the money owed and/or (b) prevent possible larger losses. Such as:

  • Lower the outstanding credit limit - i.e., allow some small purchases but not large purchases
  • Cancel any future use of the card
  • Turn it over to a collections department

If they just let it go at "full credit limit" until the expiration date printed on the card, they could be out a lot of money.

Going Out With A Bang

Someone has a credit limit of $10k. They hardly use it at all. A few hundred a month, paid back quickly. Then suddenly they want to pull out $10k at one time. The company may look at the situation and say "No", out of concern that it is either fraudulent (stolen card, etc.) or that the customer is going to try to "take the money and run". Depending on what they find initially, they may choose to cancel the card/credit limit altogether, or they may lower the limit or they may do nothing at all if they think that it was just too much at once but not an indication of fraud.

External Factors

When issuing a large credit line, a company may choose to get a full credit report. If that shows a certain quality of customer then they issue the credit line. Later on they may, either prompted by activity or by periodic review for other reasons, get a new credit report that shows a lower quality of customer - i.e., less likely to pay back in a timely manner. They can then choose to reduce or entirely cancel the credit limit.

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  • This seems to have nothing to do with the question. Jan 5 at 23:49
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    @JoseGarcia I am giving some typical scenarios as to why legal reduction or cancellation of a credit line pretty much has to be baked into the system in order for it to work well in the real world. Jan 6 at 23:16
  • "Working in the real world" is not a legal concern. Jan 7 at 4:18
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    "Working in the real world" drives a lot of the legalese in these agreements - i.e., to cover the details of all the possible ways things can (and do...) go wrong over the lifetime of a legal agreement. Jan 7 at 4:22

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