Under pressure from the federal consumer protection agency and advocacy groups, many of the nation's top credit card lenders are now getting rid of their protection plans that experts say cost consumers millions per year.
Credit protection plans used to be a very common feature on borrowers' accounts, but recent actions by the Consumer Financial Protection Bureau and heavy criticism have led many lenders to stop offering them, according to a report from USA Today. In general, these programs are generally rather expensive over the course of a year and do little to actually help troubled borrowers in the event of financial emergencies.
How they were conceived
Credit protection plans were designed and marketed as ways for consumers who run into serious economic difficulties to put off worrying about their credit card bills for a short period of time, the report said. In the event of job loss or some other life events that could cause significant financial strain, such a service, which could come with a price tag of $10 or more per month, would allow consumers to cover only their minimum monthly payments for a period ranging from 18 months to two years. Other such plans from major lenders could cost consumers as little as 1 percent of their total outstanding balance, meaning that those who had $2,000 in debts would have to pay $20 per month to stay current when they hit a rough patch.
But experts have noted that in many cases, the problem with these products is that they were not marketed fairly, and led many consumers to pay hundreds of dollars or more for the service, which they often didn't need, the report said. Further, there was typically a tangle of fine print that had to be cut through, which made it difficult for many borrowers to actually qualify for coverage even if they lost certain kinds of jobs. For instance, under a Bank of America service plan, those who were also full-time students, or worked for a non-profit employer, were not eligible for coverage.
The CFPB finally decided to take action against such a service earlier this year, leveling charges against Capital One Financial, the report said. The case was ultimately settled with the federal agency, and led the bank to pay $60 million in penalty fees on top of refunding approximately $150 million to 2.5 million people.
The financial institution said the average refund its affected customers receive will be less than $100, the report said. Those who still have accounts with the bank will be able to see the amount credited to their card, while those who do not will receive their payment in the form of a check.
What lenders are doing
The action taken by the CFPB against Capital One caused many lenders to review the ways in which they market and offer credit protection plans, and as a result, most changed their approaches, the report said. For instance, Bank of America stopped marketing both its Credit Protection Plus and Credit Protection Deluxe plans last month, and will not offer it to new customers in the future. It will shut down the programs entirely next year, and current customers will receive six months of protection free of charge.
American Express also discontinued offering its Account Protector plan, and will shutter the program entirely at the end of the year, the report said. Further, Chase hasn't accepted new enrollments in its similar service for nearly a year.
Two major lenders, Discover and Citi, still offer the programs, the report said. For its part, though, the latter says it is not currently marketing them, and is reviewing its practices for doing so in an effort to stay within CFPB guidelines. Consumers can still sign up for the program online, however.
It takes more than programs such as this for consumers to protect their various financial accounts. One great way in which you can get a better handle on making sure you don't run into any fiscal problems is to regularly order copies of your credit report and check it closely for unfair markings.
In many cases, this type of entry may exist on your report despite having done nothing wrong, which in turn can have a negative impact on your credit score. A lower rating can then either make you ineligible for credit, or lead you to pay more for it through higher interest rates and fees. Fortunately, you may be able to clear up the issue with relative ease by contacting a credit repair law firm and working with them to correct the unfair markings you discovered. This may help to return your credit to where it deserves to be.