Defaulting on Card May Cost You Your AmEx Points

Dear Cashing In,

I have read a few of your columns regarding cashing in miles and bankruptcy. My question is similar. I had an American Express Centurion card with approximately 300,000 points on it. My husband came into difficult times and was unemployed for many years, while I became disabled. When we realized we were getting low on savings with no job offers in the immediate future we had to cut back tremendously on our buying, but found we had more debt than cash toward the end. Unlike many, we chose to stop buying and did not try to run up a bunch of high bills after deciding to file for bankruptcy. In fact, I was very against filing bankruptcy but found we were really left with no choice. (We had two companies of our own fail, which spent millions of our money.)

Before even filing for bankruptcy, we began to have difficulties paying our bills. At that point, American Express took away all of the points we had already earned and paid our bills for earning them. Is it right/fair/legal for them to do so, given the fact that had I known I could have already cashed them out? These were years' worth of points! I would greatly appreciate knowing. I had planned on using them to get Christmas gifts for my children. It's hard enough having had all of the rest happen, but to penalize me on top of it was very hurtful given the circumstances.

- DN

Dear DN,

I'm sorry you're going through this. It sounds like you and your husband have had a tough time of it. I'm sure you're wishing you had cashed out those points -- 300,000 would buy a lot of Christmas gifts.

If you had earned your points on a co-branded credit card, such as an airline or hotel card, they would have automatically been credited to the partner loyalty program as you earned them. But points earned on a Centurion card are linked to the American Express account and stay there until you spend them or transfer them to a partner program.

American Express makes clear in its terms and conditions that it can cancel points for a particular billing period if you fail to make the minimum payment on time. Cardholders can reinstate these lost points by making all the required payments. American Express charges $35 for each billing period you missed and each card that you reinstate, and you must reinstate them within two years of losing them.

If you have more than just a missed payment or two, such as a default or suspended account, then American Express gives itself the right to cancel your account "for any reason (including your death, bankruptcy or insolvency)." If it cancels your account, you forfeit all of your points.

I'm assuming AmEx did close your account, though it's not clear from your letter when that happened. I asked bankruptcy lawyer Ted Connolly if you have any recourse when it comes to the points.

"Unfortunately, reward points associated with bank-linked credit cards such as with American Express are property of the bank, not you as the customer," Connolly says. "The points are an incentive given to you by the company and you have to abide by the terms of the program in order to continue to hold the points or redeem them."

Conolly points out that provisions for recovering your points can be found in the fine print of your application materials. "If you are able to reinstate your account within one year of it being canceled, you can get your points back," he says. "However, because the company does not state what you must do to reinstate a canceled account, I fear the task is quite onerous. It may be worth a call to American Express to find out what [you] would need to do.

"It is such a shame to see all those points disappear, but reward points are a privilege that usually dwell outside the consumer protections we see with many other transactions. The companies hold the power and dictate the terms," he says. "Still, no harm in making a few calls to see if you can make a deal to get them reinstated. Make sure the terms of any deal are terms that you want and can handle."