To the delight of consumer advocates, several American banks will be discontinuing controversial add-on products such as payment protection and debt protection in the coming year.
Bank of America
After numerous complaints regarding payment protection programs, Bank of America announced last month that it will no longer be offering its credit protection services to bank credit card holders.
The bank is currently in the process of settling a class-action lawsuit for $20 million which alleges that some customers were not enrolled in the programs properly and that deceptive practices were utilized to generate business. While Bank of America denies wrongdoing and has not been ordered to stop the program, a spokesperson has said the bank decided to do so as a business decision.
For years, Bank of America had offered cardholders the opportunity to skip monthly payments in the event of personal hardship, such as a job loss or a medical issue, without the risk of damaging their credit ratings. This program, called Credit Protection Plus, acted as a form of insurance allowing customers to cancel their minimum credit card payment for up to 18 months. The program also allowed a three-month-hold on payments for other life events, such as relocation, college enrollment, marriage, new child or divorce. Credit Protection Plus cost consumers 85 cents on every $100 of the card holder’s monthly balance, and was added to the balance.
Bank of America has now ceased offering the option to new customers and has plans to eliminate the program entirely by next year. Those customers already enrolled in the program will receive six months free before it is canceled. This product elimination comes after Bank of America nixed its ID-theft protection service last year when customers questioned whether they actually were protected.
Capital One also made the news recently as it settled with the Consumer Financial Protection Bureau (CFPB) and was fined a total of $210 million for pressuring customers to purchase often unnecessary add-on products such as debt protection. According to the CFPB, third-party operators insisted that customers purchase products upon opening new accounts. CFPB also said operators misled customers on the programs’ true costs.
Capital One will not offer its payment protection and credit monitoring products in the future. The company will also refund $10 million to customers for employing unfair billing practices and for not developing a program to prevent unfair and deceptive practices.
Using data from the nine largest credit card issuers, the United States Government Accounting Office (GAO) reported consumers paid approximately $2.4 billion on 24 million accounts for debt protection products in 2009. While the products are intended to protect a person’s credit rating during tough financial times, regulators have reported significant consumer complaints. Fees for the products are also high, with the cost often exceeding 10 percent of the consumer’s average monthly balance. The GAO reported customers only received 21 cents each in tangible financial benefits.
Bankrate.com recently reported that additional credit issuers have decided to cut back on marketing similar programs and that some issuers have decided not to offer the programs at all. Chase, for example, stopped selling its payment protection plans in October 2011 and put its telephone sales on hold to review procedures.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- O'Daniel, A. (2012, August 22). Bank of America Will Stop Selling Credit Protection Service. Retrieved from http://www.bizjournals.com/charlotte/blog/bank_notes/2012/08/bank-of-america-will-stop-selling.html
- Gombossy, G. (2012, August 25). Bank of America Exits Credit Card Protection. Retrieved from http://ctwatchdog.com/finance/bank-of-america-exits-credit-card-protection
- United States Government Accountability Office (2011, March). Consumer Costs for Debt Protection Products Can Be Substantial Relative to Benefits but Are Not a Focus of Regulatory Oversight. Retrieved fromhttp://www.gao.gov/assets/320/317042.pdf
- Johnson, A.R. (2012, August 21). Bank of America Nixes Debt-Protection Product Amid Industry Scrutiny.
- Herron, J. (2012, August 22). BofA Dumps Add-on Products. Retrieved from http://www.bankrate.com/financing/credit-cards/bofa-dumps-add-on-products/#ixzz24yfjhLL6