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Mauricio Aragon

Charge card payment protection a shell game

Tuesday, July 16, 2013 - Article by: Mauricio Aragon - BW inc. - Message

Anyone who has or is going to open a charge card account sometime in the future might get offered payment protection. On the face, it seems like advisable, but in reality, it's a shell game that's dangerous for one's wallet. Source for this article: MatchFinancial

First ever CFPB fine

Capital One was given the honor of getting the first ever fine from the CFPB. It was done in a joint action with the Office of the Comptroller of the Currency, according to USA Today. The enormous bank is dealing with $50 million in fines and having to pay another $150 million in payment to consumers.

The issue was with credit card services marketed to customers by third parties including credit monitoring and payment protection plans. These vendors didn't disclose costs, were not honest about services that would be provided and cost Capital One's customers a ton of cash in the process.

Time magazine points out that Capital One is certainly not alone in dropping payment protection from the services offered with a credit card. A lot of banks are dropping these kinds of plans.

A lot of people see Nothing more than a cash loan to the bank

All insurance programs fight you whenever you go to claim money from them because they are just attempting to make money. That is why payment protection programs are offered and almost never actually pay out. The programs promise to "cancel" some debt and pay minimum payments for a few months if someone were unable to pay for some reason, such as losing a job or getting injured. This is something individuals have been cautioned against getting for some time.

Insurance businesses avoid having to pay out claims at times, because it means they have to spend money rather than collecting a check. Similarly, a payment protection scheme collects a small amount, usually about 1 percent of the balance, according to Time, or, as the GAO found in a survey, between 85 cents to $1.35 per $100 owed, according to Fox business, which, as Bankrate points out, can often add up to many months of minimum payments on its own.

The hitch is that the terms governing how one can get the disbursement are labyrinthine, making it unlikely a person will get the payout.

Not offered everywhere

The insurance is simple cash for the banking industry, which earned $2.4 billion in 2009 from it, according to GAO estimates.

There aren't many financial advisers that would advise a person to get payment protection insurance. Articles on Daily Finance from 2008 and Bankrate from 2010 both caution people to stay away.

Payment protection litigation has made it so fewer companies want to offer it. There have been suits in recent years at Bank of America, Discover, Chase, HSBC and Capital One for the issue. That is why Capital One has dropped it and all third party suppliers of it, according to Time. Citigroup, JPMorgan Chase and B of A are also all dropping it.

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