Some Credit Card Issuers Are Ending Payment Protection Plans
After a series of consumer lawsuits and new fines from the Consumer Financial Protection Bureau, some credit card issuers are getting out of the payment protection business. The payment protection plans are marketed as a way to help consumers through difficult times, but these protection plans have restrictions and have been criticized as misleading consumers. The Government Accountability Office (GAO) found that cardholders received just 21 cents in tangible financial benefits for every dollar spent in debt protection product fees from the nine largest credit card issuers.
Credit protection plans can provide some insurance for life events–such as unemployment or disability–that may prevent you from making your loan payment. Debt protection products suspend or cancel all or part of a consumer’s obligation to repay an outstanding credit card balance when a qualifying event occurs. These protection plans actually protect the lender from your inability to repay by making payments to the lender on your behalf.
Payment protection has been big business for credit card issuers. In 2009, consumers paid about $2.4 billion on 24 million accounts for debt protection products, according to the GAO. The lawsuits and fines are taking significant slices out of this revenue. The CFPB recently fined Capital One $210 million in allegations that the bank’s third-party telephone vendors pressured or mislead consumers into paying for “add-on products” such as payment protection. In July, HSBC set aside an additional $1 billion to compensate customers who were sold payment protection insurance. Discover faces an enforcement action and fine from the Federal Deposit Insurance Corporation and CFPB over its marketing of the plans and other add-on products that it pitches to credit card customers. According to the Wall Street Journal, Discover said losses from the matter could exceed $110 million, according to a regulatory filing.
Banks are Dropping Payment Protection Plans
*Bank of America stopped promoting its Credit Protection program in August and no longer offers the program to new customers. It plans to drop the payment protection business next year.
*American Express is dropping the Account Protector program on December 31. You may be able to receive benefits if you have a quality event on or before December 31, 2012
Other cards such as Chase and Discover still offer payment protection plans.