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Credit Card Companies Dropping Credit Protection Plans

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Remember that credit protection plan that was designed to kick in if you ever lost your job? You know – the one you’ve likely never used? Well, it could be that your credit card company is kicking it to the curb. It’s a costly add on for the credit card companies and after all, many consumer groups say those policies never served their purposes anyways.

For years, consumer advocates have touted the expensive insurance policies as not needed by the consumers. The kicker in this game, though, is that in tough economy – including a massive jump in new food stamp applications and a devastating jobs report for August, it could be many consumers may wonder where those policies have gone to now that they’re really needed.

Fortunately, there are newer products that might serve the same purpose and analysts are saying it’s the way it should have been all along.

Remember, many of these credit card protection plans were put under a microscope by the Consumer Financial Protection Bureau. The government agency said there was too much deceptive marketing behind the policies. There are other ways to cover unexpected job losses and changes in financial outlooks for American families. The goal is to avoid those third party companies that easily mislead consumers.

Of course, there were lawsuits. Under a recent settlement with financial regulators, Capital One is on target to begin refunding close to $150 million to 2.5 million customers (which equates to around $100 per consumer). It was also ordered to pay more than $60 million in penalties.

To be eligible, consumers must no longer have their Capital One accounts; for those current Capital One consumers, they will see a credit to their statements beginning later this year. And consumers don’t have to do anything; it’s an across the board judgment that will affect a certain group of current and past credit card consumers.

You may recall federal regulators charged that Capital One had engaged in deceptive marketing tactics to pressure or mislead some consumers into buying their payment-protection plans and credit-monitoring services when they activated their credit cards. The courts ruled many of these consumers were led to believe the products would improve their credit scores.

In order to avoid similar outcomes, other credit card companies began taking a more proactive approach:

Bank of America ceased its efforts of pitching its version of Credit Protection Plus and Credit Protection Deluxe products in August. It’s no longer available for new customers. Plus, the bank announced it would sever all ties with the company that provided the policies. Current consumers will be given an additional six months of service at no cost.

American Express also stopped offering its own version, Account Protector, which was touted as a “debt-cancellation product” earlier this summer. It will discontinue it in its entirety as of December 31.

Discover, interestingly enough, has opted not to comment on its own offerings and says it continues to offer its own payment protection plan.

Chase announced it ceased offering its Chase Payment Protector in lat 2011, though it’s still applicable to any credit card holders who’d enrolled prior to that date. It says customers may cancel that policy at any time.

It looks as though Citi has taken a more in depth approach. It recently ceased all telephone sales for its debt-protection products and said it has reviews already underway, in line with new guidance recently issued by the CFPB. Citi continues to offer its Payment Safeguard program online, though its marketing efforts via the phone continue to be shut down.

Many analysts say eliminating the “fear factor” while pitching these programs is a big part of why the lawsuits were filed in the first place. Consumers don’t want to be reminded of financial ruin – they know the possibility exists, especially if they’ve survived the past four years.

Even worse, for those consumers who didn’t forget they’d added the policy all those years ago, they soon realized they were misled. Typically, these services only covered the minimum credit card payment due for a specific period of time, usually no longer than two years.

The only offer that went above and beyond the minimum amount due was Bank of America, which allowed its customers to have double the minimum payment canceled for up to 18 months. Not only that, but there were a host of justifiable reasons, whereas other policies only kicked in if the card holder had experienced an unanticipated job loss.

For “involuntary unemployment,” customers must qualify for state unemployment benefits, but they would not be eligible if the unemployment was the result of voluntary resignation, termination or retirement. There are additional requirements for students, non-profits and self-employed customers.

Do you have the additional protection tacked onto your credit card account? Have you ever used it or did you forget about it until your own crisis had passed? We’d like to hear your story.

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