American Express Co.'s gift card program encouraging some specific credit card customers to pay off their balances and close their accounts is a troubling indication of how desperate issuers are to stem skyrocketing credit card default rates, analysts say. "This is an interesting version of amnesty that benefits both AmEx and consumers who are dangerously close to defaulting on their credit cards," says Red Gillen, senior analyst with Celent, a Boston-based financial research and consulting firm. While AmEx's incentive could nudge shaky borrowers to pay off AmEx first among other creditors, Gillen warns that indebted consumers could end up shopping around for better incentive deals if other lenders follow suit. Brian Riley, research director with TowerGroup, an independent research firm owned by MasterCard Advisors, tells CardLine AmEx's gambit is "a pretty desperate move," noting most credit card borrowers on the brink of default typically owe several thousand dollars. "Why would a cash-strapped borrower pay thousands of dollars to close out an account and end a credit relationship, just to get a $300 cash reward? I don't see the motivation," he says. AmEx's incentive program likely targets credit card customers acquired within the last two years and located in regions hit hardest by the real-estate crisis, Riley speculates. "AmEx has said it wants to stem charge-offs in areas like California, Florida and Arizona, so they are probably going after newer borrowers in higher-risk areas to cut their losses," he says. "But it's an unrealistic play because if these people are sitting on enough money to pay off their card balances, most likely they would already have done so without a relatively small cash incentive." Todd J. Zywicki, a bankruptcy-law expert and a professor at Arlington, Va.-based George Mason University School of Law, says AmEx's program is a surprising approach to removing risky loans from the balance sheet. "AmEx is trying to use a carrot versus a stick to try to get troubled cardholders to retire their debt," he says. "It's somewhat extraordinary and hard to say whether or not it will work."

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