Last month, Capital One was hit with a $210 million penalty for engaging in sneaky marketing practices, including pressuring customers to sign on to pricey services of dubious value such as credit monitoring and “payment protection.” In the aftermath of the fine, several big credit card issuers have backed off of payment protection plans for new customers. As for cardholders who already signed up for this sketchy benefit? Many will keep getting charged until they call up and cancel the service.
The Wall Street Journal cites spokespeople from Bank of America, JP Morgan Chase & Co. and Citigroup who say they’re going to stop selling payment protection to new customers. Bank of America says it will offer existing plan customers free service for six months and will get rid of the plans next year.
Capital One, which agreed to refund $150 million in fees for payment protection and other ancillary services, no longer offers payment protection, the Journal reports. Recently, regulators have also looked at Discover Financial Services and American Express in conjunction with the payment protection plans they offer.
Even before regulators took action, consumer advocates were warning people to stay away from payment protection plans. Although they purport to offer peace of mind by guaranteeing to cover your payments in the event of a medical crisis or job loss, there are often so many conditions and exceptions that the customer is almost never able to claim the benefit.
Even if you do manage to jump through all the hoops and qualify, the plans only cover the minimum monthly payment — so you’ll be racking up interest — and stop paying out entirely after a period of months.
The plans aren’t cheap, either, at roughly 1%, give or take, of a cardholder’s total balance every month. For somebody with an outstanding balance in the mid-four figures, this could easily add up to hundreds of dollars over the course of the year. If you’re worried that an illness, job loss or other emergency could keep you from paying your credit card bills, it’s probably wiser to just funnel 1% of your balance each month into an emergency fund instead.
Oh, and since it’s also in regulators’ crosshairs, we’ll mention it here, too: Credit card companies’ identity-theft and credit-monitoring services also are products the vast majority of people don’t need. Think about it: The bank’s fraud department is already monitoring your account, and you don’t pay anything for that. They don’t want to be on the hook for some criminal’s spending spree, so they spend a lot of money making sure your account information stays out of the wrong hands.