Your Money: Amex: a privilege but not always a pleasure

Membership may have its privileges, as the American Express advertisements say, but finding those privileges is proving increasingly hard for holders of Amex charge cards, especially when they are embarrassed at the checkout as their card is refused.

Charge card holders have always been hampered in Britain by American Express's policy of charging traders higher commission on goods bought using Amex. This has meant that while most retailers accept Visa and Mastercard, the green (or gold) charge card does not do so nicely for retailers' profits and so has been accepted in fewer places.

The annual fee charged for owning the cCard, pounds 37.50 for the green version and pounds 85 for the Amex gold card, now looks high compared with just about any credit cards (many of which have no fee) and a charge card has the added inconvenience of having to be paid off in full each month.

There are some privileges of membership: a comprehensive loyalty points scheme, 90 days of purchase protection, limited travel insurance cover and, of course, a certain cachet from owning the card. But, arguably, what has been seen as head and shoulders above these benefits is American Express's pledge that its cards "carry no pre-set spending limit". "You're free to spend as much as you've shown us you can afford," Amex says. Cardholders can buy a yacht if they want, as long as they pay for it the following month. Indeed, last year one American property magnate used his card to buy a $2.5m (pounds 1.5m) Roy Lichtenstein painting; he got more than $40,000 of air miles for doing so.

The no-limits policy is what Jonathan Biles, an insurance executive from London, was counting on when he tried to pay for a "horribly indulgent" hotel bill in Kuala Lumpur, Malaysia, while on his honeymoon. Before approving the transaction of around pounds 2,000, American Express called him to confirm his identity and confirm the size of the charge. All was in order, and the transaction went ahead.

However, when Mr Biles returned to Britain and tried to pay for some office supplies and stationery on his card, he was refused. "I phoned them up and said `Please turn my card back on'," he recalled. "The representative told me that there had been an unusual transaction on my account, and that the card had been taken out of action as a result."

Mr Biles protested that his hotel bill had been paid on his card only after American Express had confirmed it was indeed him. Ther company was unmoved, however, and told him that the card would only be reactivated when he paid off the outstanding balance, which also included other expenses from his honeymoon.

American Express said that there are no limits on the amount of money that can be rung up on charge cards during a statement period but a number of safeguards are in place to combat fraud. A spokesperson said: "If a customer spends way beyond their personal threshold, we have to ask some questions." However, the spokesperson expressed surprise about Mr Biles' case while saying that American Express would be unable to pursue any inquiry until it had details of his card and the transactions.

The limits that American Express applies to its cardholders, however informal, are unlikely to do Amex any favours in the increasingly competitive UK charge and credit card market. There are now more than 31 million cards, and profit margins among the big issuers have fallen dramatically as annual fees have been eliminated and interest charges cut.

One consequence of the competition is that the big clearing banks, as well as American issuers like MBNA, have been aiming at the higher-end customers, traditionally the province of American Express, with gold credit cards that offer lower annual fees and similar fringe benefits to the basic Amex product. The cards all carry credit limits but these are pitched higher than most customers could afford to spend in a month - in some cases pounds 10,000. And, being credit cards, holders are not required to pay off their balance every month.

"The USP [Unique Selling Proposition] of the American Express charge card is slowly being eroded," said Mark Austin of RBS Advanta, which issues standard and gold Visa cards. "It still has a strong position in the corporate market, probably as a result of the fringe benefits it offers, but among consumers there's little to choose between an Amex and a gold credit card."