ADVERTISEMENT

Complaints about debt-protection plans remain high

Despite federal crackdown, consumers still protest surprise fees, hard-to-get benefits

By  |  Published: April 5, 2017

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations

Description

Credit card users are still getting taken for a ride by payment protection plans, despite a sweeping federal crackdown on the costly add-on services, according to complaints filed with the U.S. Consumer Financial Protection Bureau.

Some consumers said they were charged fees for a service they didn't agree to. Others pay for the protection only to find out they are not eligible for the benefits.

"I am feeling cheated now and frustrated," said an unemployed Citi Best Buy cardholder from Pennsylvania who was denied benefits and told to pay off his $1,500 balance. "They knew my situation and still they are doing this." Although laid-off, the cardholder wasn't eligible for state unemployment benefits, putting Citi debt protection benefits out of reach as well.

Major card issuers began closing or reforming their debt protection programs after the CFPB handed out a string of penalties starting in 2012. The bureau ordered a dozen companies to pay $2.8 billion in refunds for enrolling people who did not want the programs, or who weren't eligible for benefits. 

But complaints about the hardship programs have hardly budged. Consumers filed 577 complaints about card protection/debt protection with the bureau last year. That's only five fewer than in 2012, the first full year of record-keeping. Most of them name the same big banks that were targets of the CFPB crackdown.

The bureau's complaint numbers are only an iceberg-tip indicator of consumers' total dissatisfaction. Few consumers even know about the existence of the CFPB, a federal agency charged with being a watchdog for consumer financial products. And while the CFPB's website doesn't always offer details of the complaints or confirm they are valid, it illustrates the issues consumers face with these add-on services.

"Synchrony Bank has been charging me a 'card security fee' for payment protection services on my Lowe's Card," a credit card user in Connecticut wrote in a complaint May 2016. "I know better than to sign up for payment protection – it's almost always useless." 

Costly protection
Debt protection is an insurance-like program, also called payment protection or debt cancellation. It charges a monthly fee that's based on a percentage of the end-of-month balance. It is supposed to cover the minimum payment if you have a "qualifying event" such as job loss or medical disability – and you can prove it. Some programs erase the balance under special, narrowly defined circumstances.

The programs were never a favorite of consumer advocates, who say their costs outweigh the benefits. "Consumer Action recommends consumers decline this add-on – the product is a waste of money for most people," said Joe Ridout, consumer services manager at the San Francisco organization.

 A 2011 report by the Government Accountability Office found that issuers paid out only 21 percent of the fees in benefits, on average, keeping 55 percent as profits. The rest was absorbed by administrative expenses. Fees at the big card issuers ranged from 85 cents to $1.35 per month for every $100 of balance – for example, someone with a $1,000 balance would pay $8.50 to $13.50 that month.

Programs phasing out
Now, of the 10 largest credit card issuers, only Synchrony says it still offers its program, "Card Security," to new accounts. Wells Fargo said it has decided to discontinue its program and is in the process of notifying customers, who will continue to be eligible for benefits through April 30, 2018. Other issuers said they have stopped offering debt protection to new accounts, but some continue the program for existing enrollees.

Synchrony, with the only active protection plan available for new accounts, charges a fee of $1.66 per $100 of balance, higher than the top end of the range found in the GAO study. Its program also offers to wipe out the entire balance after the third month of documented unemployment, a relatively rich benefit.

The company is not a complaint leader in the CFPB database, however. Its 54 debt protection complaints in 2016 trail Citi, with 147; Chase, 75; and Capital One, with 61.

"As part of our commitment to consumer transparency and service quality, we continuously gather feedback from users of the Card Security program, who report high satisfaction," Synchrony Vice President of Communications Carlos Campos said in an email response to questions.

The company, a store-card specialist, overhauled its debt protection program in 2012, making it available only online and in certain print channels, he said. "Customers are provided with a description of the benefits, features and cost in a transparent manner, along with a frequently-asked-questions document for review and consideration prior to purchase."

Sources of friction
But griping about the programs continues, and not just at the CFPB's complaint window. Several comments on Amazon's customer discussion board take aim at the Amazon store card, issued by Synchrony.

ConsumerAction is also hearing problems about debt protection, Ridout said. "The complaints still seem to be coming in," he said. "We've heard complaints about numerous different cards and the limitations of these protection plans."

Why aren't problems with debt protection dwindling? Only a fraction of complaints published by the CFPB come with a consumer explanation of the problem, leaving the details in the dark. But the few explanations that are available yield clues to the source of problems.

HOW TO PROTECT YOURSELF
FROM DEBT PROTECTION
If you don't want coverage:
  • Check monthly statement for fee assessed on size of balance.
  • If charges appear, determine how long the fees have been charged and ask for a refund.
If you do want coverage:
Make sure you are not excluded from job-loss benefits because of:
  • Part-time/seasonal/contract work
  • Self-employment
  • Employed by immediate family member
  • Ineligible for state unemployment benefits
  • Hours are reduced
Other important questions to ask:
  • Does the program cancel monthly payments, or just suspend/delay them?
  • Does it cap benefits by dollar amount or time limit?
  • Does it erase the balance, and under what circumstances?
  • What documentation is needed for job-loss benefits?
  • What documentation is needed for disability benefits?
HOW TO PROTECT YOURSELF FROM DEBT PROTECTION
If you don't want coverage:
  • Check monthly statement for fee assessed on size of balance.
  • If charges appear, determine how long the fees have been charged and ask for a refund.
If you do want coverage:
Make sure you are not excluded from job-loss benefits because of:
  • Part-time/seasonal/contract work
  • Self-employment
  • Employed by immediate family member
  • Ineligible for state unemployment benefits
  • Hours are reduced
Other important questions to ask:
  • Does the program cancel monthly payments, or just suspend/delay them?
  • Does it cap benefits by dollar amount or time limit?
  • Does it erase the balance, and under what circumstances?
  • What documentation is needed for job-loss benefits?
  • What documentation is needed for disability benefits?

Denied claims cause complaints
Many gripes appear to be holdovers from denied claims on programs that have been in force for years. A complaint against Discover said the company denied death benefits for a longtime Iowa cardholder who had paid debt protection fees for years. After sending in a death certificate as the company requested, the family was told there was no death benefit, as the woman had believed. Instead, Discover told them the full balance was due immediately.

Descriptions of Wells Fargo's program state that card protection was offered only in person by branch workers before the bank decided to wind down the program. In-branch enrollment may have avoided problems of deceptive marketing by third-party salespeople, a recurrent problem found in the CFPB crackdown. But Wells Fargo branch workers have also been found to be marketing bank products over-aggressively, even opening up unwanted credit cards and other accounts.

It may be little consolation to people affected, but the 577 debt protection complaints in 2016 represent a shrinking share of all CFPB card complaints, as the volume of total dissatisfaction rises or more consumers learn about the agency's complaint window. Total credit card complaints were about 37 percent higher in 2016 than 2012, while debt protection complaints were about the same.

What to do?
While the complaints show that debt protection is still an issue, they also show how cardholders can protect themselves from unwanted charges or unavailable benefits. Several consumers say they learned they were being charged the fee after reviewing their monthly statement – the official one on paper or electronic document, not the online summary of charges. One Citi Best Buy cardholder said his online account information did not show the program was active. And in months when his balance was $0, even account statements failed to reveal the program.

"I have recently discovered that I have been charged for a 'Debt Cancellation' on the card for the last eight years with no knowledge of ever signing up for the product," the Ohio resident said.

One upside in the complaint data is a high rate of refunds – 25 percent – for people who lodge complaints about debt protection programs with the CFPB. For example, the Connecticut cardholder who was surprised to find out she'd paid hundreds of dollars for Synchrony's card security program received "monetary relief," in the terminology of the complaint data. The records don't reveal if she got back all the fees she had paid.

People who still want debt protection coverage despite the cost should make sure they will be eligible for benefits if the need arises, consumer advocates say. That means getting a copy of the program's terms and reading it carefully.

 "People who sign you up tell you you're eligible for balance cancellation," Ridout said. "They won't take the same pains to tell you that you won't be eligible if you're a seasonal worker, or work less than 30 hours a week, or lose your job under certain circumstances but not others."

See related: 7 questions to ask before buying credit card payment protection, Banks making refund for add-on products, 7 ways to protect your credit rating during unemployment

ADVERTISEMENT
ADVERTISEMENT

Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Updated: 08-18-2017

ADVERTISEMENT


Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


ADVERTISEMENT