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BofA dumps add-on products

By Janna Herron · Bankrate.com
Wednesday, August 22, 2012
Posted: 5 pm ET

Certain add-on credit card services may soon go the way of VHS tapes and rotary telephones.

Bank of America confirmed Tuesday in several media reports that it's no longer selling payment protection plans to new cardholders. It will honor existing plans but will end those sometime next year.

Payment or credit protection plans will cancel a credit card holder's monthly minimum payment following a medical emergency, job loss or other big and adverse life event. Other add-on products include credit monitoring services that offer customers free peeks at their credit reports several times a year along with alerts when a substantial change has been added to the report.

These services, which come with an extra fee, have been under fire recently as targets of class-action lawsuits or enforcement actions from the Consumer Financial Protection Bureau, the federal consumer watchdog.

Bank of America is settling a $20 million suit that alleges the bank's customers did not get their money's worth from these products. Last month, the federal government ordered Capital One to refund $150 million to 2 million cardholders for deceptively selling payment protection plans and credit reporting services. It also levied $60 million in penalties on the issuer, which can't sell these add-on products until it submits a compliance plan to the CFPB.

At the time, CFPB Director Richard Cordray hinted that other similar actions are in the offing.

"What we know is that a (government accountability office) report came out recently and said that add-on products were a potential problem across the credit card industry," Cordray told reporters on a call after the Capital One enforcement action was announced. "This is not unique to a single institution, and we expect more activity going forward."

Two weeks later, American Express disclosed in a federal filing that it "currently believes" the CFPB will take action against a subsidiary that issues the uber-exclusive Centurion Card for its practices of selling add-on products. Additionally, the issuer said it believes the CFPB could target the company's other subsidiary that issues its other American Express cards for the same reason.

Other issuers have bowed out voluntarily from selling these plans, or sharply cut back on efforts to sell them. Chase stopped selling its payment protection plans in October of last year. Citi halted its telephone sales of a similar plan so they can review how they're sold.

It's a good bet that these products will disappear, at least temporarily, until issuers can sell them honestly to consumers. And I say good riddance. You don't need them.

Instead of paying extra for a payment protection plan, put that money toward building emergency savings to help you weather bad times. Make a concerted effort to pay down outstanding balances, and once you do, only charge what you can afford to pay off fully every month.

Last, if you're worried about your credit, get your free credit report every 12 months from each of the major bureaus -- Equifax, Experian and TransUnion -- to make sure the information is correct.

Have you bought any of these add-on products? Have they failed you when you needed them? Sound off.

Follow me on Twitter: @JannaHerron

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4 Comments
Janna Herron
August 23, 2012 at 5:22 pm

@Nick C - Great tip for AmEx users. Thanks, Janna

Ray
August 23, 2012 at 10:15 am

I would add that instead of wasting your money on credit monitoring services, just freeze your credit with all three bureaus ($30, I believe...). When and if you need to apply for new credit, you can do a "temporary unfreeze" on-line (for another fee). This method is much cheaper than the monitoring services.

Nick C
August 22, 2012 at 7:11 pm

The only worthwhile add-on I have is supplemental car rental insurance from American Express. It is a lot cheaper than what the rental agencies charge (AMEX's charge is equal to one day's insurance at a rental agency) and, unlike the free coverage, it is primary (meaning you don't have to file a claim with your auto insurance company).