Easy Come, Easy Go: Prosper.com Hits Regulatory Hurdle

Posted by Steve Rhode

October 23, 2008

American Express is very hip to this game, by the way. Paypal purchases are always scrutinized by American Express. They’re scrutinized because it’s so easy to do what I’ve just described. Small purchases won’t likely gain anyone’s attention at American Express, but you can bet your bottom dollar that big purchases won’t go unnoticed.

American Express, once it has flagged your account, wants to know two things: one, are you essentially doing a cash advance or balance transfer? And, two, are you broke? Indeed, if you are doing these kinds of sham transactions, you’re likely strapped for cash. If you’re strapped for cash, and doing these kinds of deals, then you’re likely a high-risk customer to American Express. If you’re a high risk to American Express, it’s going to reduce your limit substantially or cancel your card altogether.

If you’re going to do these kinds of Paypal transactions, don’t use American Express to do it. They’re on top of the game when it comes to this stuff. Better still, just don’t do it at all. Indeed, this is not the credit environment in which to test the cards companies’ computer systems.

OK. Remember earlier this week when I posted a story about alternative lending? You remember. It was the upbeat story about peer-to-peer (p2p) lending — and how this credit crisis is good for business (link here). That story was written by Economix, a blog at the New York Times. The blog pointed out that more traditional-looking borrowers were turning to p2p for funding needs during the credit

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