Consumer Payment Card News

Credit Protection

Programs that offer to cancel your credit card debt if you die, or make your monthly payments when you are disabled or unemployed, have always been exorbitantly expensive for consumers. Finally, government regulators are stepping in and clamping down on such programs that are offered directly from banks. Many credit card issuers offer life/disability/unemployment insurance programs provided by third-party insurance firms. However, during the 1990s many of the top card issuers started to provide the protection directly after a Federal appeals court upheld that such products are banking products and not the business of insurance. But the popularity of these so-called “debt cancellation contracts” and “debt suspension agreements” among national banks has prompted the Office of the Comptroller of the Currency to issue a new regulation adding some consumer protections. The new rule, which takes effect next June, prohibits national banks from retaining a unilateral right to modify a “DCC” or “DSA,” unless either the modification is favorable to the customer and is made without additional charge, or the customer is notified of the modification and had a reasonable opportunity to cancel the contract before it takes effect. The new OCC rules also prohibit national banks from conditioning the availability of credit upon a customer’s purchase of a “DCC” or “DSA” and from engaging in misleading practices or using misleading advertising. The OCC says current disclosures required under the Truth in Lending Act are inadequate when it comes to the features of a “DCC” or “DSA”. Therefore the OCC will require banks to tell customers of the prohibition on tying; explain that a debt suspension agreement, if activated, does not cancel the debt, but only suspends requirements to make payments; disclose the amount of the fees charged; make customers aware of the option to pay in a lump sum or periodic installments; disclose their refund policy if the fee is paid in a single payment and added to the amount borrowed; and tell customers whether they would be barred from using the credit line if the “DCC” or “DSA” was activated. In general, credit protection programs offered directly by the bank or through a third-party are expensive. The average cost to the consumers is about 65 cents per $100 of balance per month. This simply means if you carry a $3,000 balance you’ll pay over $350 annually for life/disability/unemployment coverage. In most cases you are much better off obtaining individual insurance.

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