Consumers advised to avoid credit card protection plans
A recent report by the Government Accountability Office advises that consumers may want to think twice about entering into credit card debt protection plans. Such plans usually offer insurance against missed payments and so forth and seem like a good idea. However, it may benefit the card companies more than customers.
Debt protection plans benefit card companies
Credit card companies currently offer their customers dept protection plans, which the Government Accountability Office asserts is a beneficial arrangement, but mostly for the card companies. Essentially, if card carriers want to guard themselves against a possible default or missed payment, they can enroll in a debt protection insurance plan. The card holder pays a monthly fee, which is usually 85 cents to more than $1 per $100 of balance carried, according to Marlys Harris’ blog on CBS MoneyWatch. At $1 per $100, a $2500 balance generates about $300 in enrollment fees per year. Those debt protection fees added up to $2.4 billion in revenue for the credit card companies in 2009, according to the Wall Street Journal.
Few claims paid
From that $2.4 billion in revenue, card issuers only paid about $518 million in benefits to people who filed a claim and only about 5.3 percent of people who filed a claim and maintained a balance had their claim paid by the credit card company. That revenue was about 55 percent profit, and a further 24 percent went to administrative costs. The 21 percent of revenue that was paid out is far less than automotive and life insurance companies pay. A person could conceivably be better off using instant payday loans instead of credit cards with debt protection insurance, in that most payday loans get paid off all at once.
Bank fees hard to get clarified
A survey by the United States Public Interest Research Group, a consortium of public interest groups from all 50 states, found that less than 40 percent of 392 surveyed banks and credit unions would fully comply with the Truth in Savings Act when asked to provide a list of all the fees the bank charges consumers, according to Reuters. Upon request the institution should be able to produce a fee schedule that lists account service fees, account closure fees, ATM fees and other fees such as a stop payment fee, bounced check or check processing fee. Some complied after multiple requests, and 45 percent refused to comply at all.