Surprise! Your card's no good

A Wall Street Journal story discloses what may be a surprising fact: Credit card companies can cancel your card without giving you advance notice.

The story relates how a lawyer tried to use her American Express card to pay for a spa treatment and was surprised to learn that her card was no good. The same thing happened to a man who wanted to pay for a sushi meal with his HSBC Cash or Fly Platinum MasterCard. (Both said they have very good credit.)

Many people have encountered similar denials as credit card companies -- facing rising delinquencies and new federal regulations -- "reassess risk" and cancel accounts, the story said.

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We have to wonder: Has this happened to you? Is it embarrassing, or do you calmly reach in your purse or wallet for a backup? Shouldn't the card companies be required to give you warning?

Our reaction would be panic. Did someone steal our identity? That was the fear of one of the canceled-card consumers interviewed in the story. "You start thinking of everything bad that could have happened," Lane Gold said.

Ron Lieber wrote in The New York Times that most people are beyond being embarrassed if their card is rejected. He said:

There are lots of reasons for cards to be declined -- from unfiled expenses at work to overactive card security mechanisms that cut you off for fear your card has been stolen while you're on the road. All of your dinner guests know this, and they've been there themselves.

We're not so sure about that. "They are OK with us being embarrassed by our cards being declined in stores or wherever we shop," Susan, of Santa Clara, Calif., wrote to our partner ConsumerAffairs.com after Chase canceled her Washington Mutual card.

Irritation would also be a reasonable reaction. Cancelation without notification can have dire effects, wrote Elana Centor at BlogHer, "potentially leaving people on vacation, out of the country, in an emergency room -- in a very awkward, not to mention humiliating position." (Elana also focused on the many WaMu customers whose cards have been canceled since Chase took over that bank.)

Here's what's required when your card is canceled, according to the WSJ:

If an issuer cancels an account due to customer inactivity, default or delinquency, notification to the cardholder isn't required, according to the Equal Credit Opportunity Act. However, an issuer is required to notify consumers about an account closure if the issuer terminates it based on other factors, such as information from a consumer's credit report. In these cases, ... written notification is provided within 30 days of -- not necessarily prior to -- the account's being closed.

Published Aug. 12, 2009