Legal Analysis of American Express Contract

The introductory section of the credit card contract specifies pricing information.  All relevant transfer information and penalty fees are described in detail with associated percentages.  The next section states that the contract may be amended at any point in the future and that the participant will be notified of any changes.  A transaction section follows, summarizing the meanings for transfers, cash advances, and purchases.  Transactions that involved foreign currencies are also covered in this section.  The next major section is based on the credit cards interest details and general fees.  Interest rates are defined and described in detail, and the formulas for calculating interest are included as well.  Rates are subject to change in various circumstances for the card.  The adjustments for such specifications are given in detailed mini-sections at this point.  Penalty APR is detailed next, as well as the times at which such penalties will be applied and how they will be calculated.  A billing cycle section is included to inform participants of the methods for paying their various credit card expenses and their interest.  Additional information is given on interest, as the form states that interest is accrued daily and will not be charged to the participant so long as all bills are paid by their deadlines.  The contract also includes which types of balances will be subjected to interest rates and what the minimum interest charge will amount to. 

There is an account fees section describing what types of fees will be applied to the specific card and the values that these fees will amount to.  The contract notifies the participant that by signing the form they are agreeing to pay for all purchases and transfers made, and the reporting of credit scores.  It also includes what types of payments will need to be made while the credit card is in use, and how much these payments will amount to.  Should the participant be unable to pay they will naturally default on their credit card bills.  The following section details the protocols that occur should the participant default on their loans.  Although the card does not have preset spending limits, there are conditions specified to inform the participant of the times at which transactions will be denied.  The account opened by the contract may be closed at specified times, or the bank may refuse to continue to honor the deal, and these rules are detailed in the next section.  The limitations section includes which persons may use the credit card apart from the contract owner.  The contract includes over drafting rules as well as details on what types of information are kept by the contract offering company.  A final section is included to outline basic applicant rights.

The merger and integration clause is used in the above credit card contract to specify that by entering into the application, the applicant is recognizing that they fully understand and agree to all included details.  Merger and integration clauses are also used to outline the processes for making changes to the contract.  In this case, the applicant agrees to the existing contract as well as a change structure implemented by the bank.  The bank takes full power here and states that it may make any changes it sees as necessary in the future.  Of course, should such changes be made the bank must properly notify the participant in according with both state and federal laws regarding such notification?  The contract includes any relevant reasons for these future amendments, and although they are written in the specific fashion they are quite wide in their overall scope.  Specific detail is given to the wording that will be used to describe both the participant and the bank, and reference is given to the time frame under which changes will take place.  This contract also includes a choice of law and forum clause within the merger and integration clause.  It specifies in this case that all amendments will conform to the requirements of federal and Delaware law.  The details are included but not extensive.  The contracts only desire is to state that the amendments will be in accordance with laws that are particular to the area in which the credit card is being issued, as well as laws the cover a national range.  It is evident that the contractor is concerned mostly with offering the participant a brief on what sort of specifications will be included.  This puts the participant at fault should any additional research not be done, and protects the bank from future complaints from the client on this subject.

The contract includes a modified version of an attorney fees clause in the section describing payments and details of default.  I term the credit card version as a modified attorney fees clause because the clause includes costs incurred during any collection proceedings.  By defaulting the participant has already lost, and there does not need to be a trial with a real result for the focus of payment to be determined.  The participant must pay the attorney’s fees simply because of the defaulted, and there is no judge ruling because there need not be a case.  In the event of a default by the participant, the participant breaches their earlier promise to pay all fees and transactions incurred during the use of the card.  Since the participant is agreeing to the terms of the contract that are included before this clause, it is reasonable to ask for returns on damages that result from the breach of the contract.  The contract specifies these damages as “costs we incur in any collection proceeding, as well as reasonable attorneys' fees if we refer your account for collection to an attorney who is not our salaried employee.”  Although somewhat detailed, the clause leaves a significant amount of room for interpretation. 

“Reasonable” is not specified in any particular way and thus does not give the participant much of an idea of how much collection fees would actually be.  In addition, since the participant is not likely to be privy to knowledge of how many collections fees generally cost in these situations, it leaves further room for expansion or contraction based on the bank's desires.  Trust is crucial on the part of the participant.  The bank leaves itself open on the end of the interaction, and there is also a possibility for somewhat shady cooperation.  The bank could choose to offer the collection contract to an associate of theirs who does not work directly for the company - much like how JP Morgan Chase handles their collections.  Such a transaction could boost the banks standing with said participant but would, of course, include other legal qualms not included in this section or clause.

There is a liquidated damages clause in the interest and fees portion of the credit card contract, specifically under the account fees section.  A liquidated damages clause is included to specify the “amount, stipulated in the contract, that the parties to a contract believe to be a reasonable estimation of the damages that will occur in the event of a breach” (Miller & Hollowell, p. 202).  In this case, the breach is a late payment from the participant or a payment that is rejected by the bank.  A late payment is simply a payment that is received after the due date for that particular payment.  Although the details of the late payment are included in this section, the cost is placed on the opening page of the contract, which specifies a late payment fee of 35 dollars.  The contract states that the late fee will not exceed the total minimum payment due from the payment cycle in question, which in this case means that if the minimum payment was not 35 dollars, there cannot be a late payment fee, or that the fee will at least not be 35 dollars.  The opening page also specifies the amount due for a returned payment, which costs the participant 25 dollars.  A payment may be returned for any reason according to the contract, and minimum payment specifications are the same here except for the fact that the fee may not exceed the actual amount of the returned payment, not just the minimum.  The contract is essentially stating, with this clause, that a late payment costs the bank about 35 dollars, which is most likely a result of delays in the banks accounting work.  Returned payments cost the bank less in theory, and are also a result of the bank's own discretion in some cases.  It makes sense for them to cost less because the bank can proceed with its normal accounting cycles as a payment was attempted to be made. 

Sources

Miller, R.L., & Hollowell, W.E. (2011). Business law text & exercises (6th ed.). Ohio: South-Western Cengage Learning.