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What is payment protection?

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Debt protection products are sold on the idea that they suspend or cancel credit card debt for a period after a critical event, such as a lost job, disability or death.

Who is using debt protection services?

Any cardholder who is worried that they may not be able to pay their bills could benefit from a good debt protection service. Read the policy carefully and insure that it is provided by a reputable and reliable source. Note that consumer groups contend the products prey on desperate customers.

What are some common complaints or concerns with payment protection programs?

In complaints on consumer websites, to federal regulators, and in a raft of lawsuits filed by West Virginia and other states, consumers have railed against the product. Many customers complain they were unknowingly signed up for the insurance, or unfairly denied benefits. The US Consumer Financial Protection Bureau found that cardholders only get 21 cents of benefit for every dollar they spend on debt protection fees. The nine largest credit card issuers collected $2.4 billion in fees for debt protection products in 2009, and only paid out $518 million of that to consumers in benefits.

What are the current laws regulating debt protection programs?

Over the past 20 years, a series of legal cases and rulemakings by the Office of the Comptroller of the Currency solidified and expanded the banks’ right to offer the products under federal regulation, outside of the reach of state regulators. The Minnesota attorney general settled earlier this month with Discover Bank, after alleging it deceptively charged customers for payment protection plans. The bank agreed to pay $2 million as part of the settlement. Discover has reached a preliminary settlement on eight class action suits, but still faces a probe from the Missouri attorney general and a pending enforcement action by the Federal Deposit Insurance Corp over the marketing of fee-based products, including the payment protection plans.

How does a bad credit rating affect my future finances?

When your credit rating goes down you will have limited ability to open future cards or qualify for mortgages, loans and other lines of credit. This could affect your ability to buy a car, house or borrow money for school.

Who benefits most from payment protection plans?

According to Andrew Kahr, a principal at Credit Builders LLC, a financial product development company, and company that offers payment protection plans in his opinion piece in The American Banker, payment protection plans only have a loss rate of 20 to 25 percent for banks, compared to state-regulated insurance products that often have a mandated loss rate of at least 80 percent. In other words payment protection plans help the banks make money.

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