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Who’s right: Chase or customer?

By Janna Herron ·
Tuesday, October 15, 2013
Posted: 4 pm ET

A Los Angeles Times article this week pits a credit card holder against Chase after the bank discontinued its payment protection plan. Whose side are you on?

At the advice of her son, a 94-year-old woman bought Chase's plan that cancels a credit card balance of up to $25,000 if the cardholder dies. In May, Chase informed cardholders enrolled in the plan, including this elderly woman, that it will cancel the plan in May 2014. Until then, the bank will offer the benefits of the plan at no cost.

The woman reportedly is upset because, if she does not pass away before next May when the plan ends, her estate will have to pay the $38,000 in outstanding balances she has amassed on three Chase credit cards, leaving nothing for her children. On top of that, she already paid $16,000 in monthly fees over 10 years to buy a plan that she will never benefit from.

Chase spokesman Paul Hartwick noted that the plan acts like insurance, and many times, consumers pay premiums for an insurance product they never use. Additionally, the fine print allows Chase to change the terms and agreement of the plan at any time with advance notice.

"We believe one year's notice and 12 months of fee-free coverage gives customers time to evaluate their options and make any decisions based on their individual needs," Hartwick wrote in an email. Hartwick declined to comment on this woman's case, other than to say they are working with her.

From my perspective as a credit card analyst, I sympathize with the elderly woman over wanting to leave her children an inheritance. But I think she should have applied the monthly plan payment to paying down her balance, instead. If she had, the balance could have disappeared over 10 years.

Chase charges 89 cents for every $100 in outstanding balance for the plan. We don't know how much her starting balance was, but we do know her ending balances total $38,000, which means she was paying $338.20 a month for the plan.

Let's say she applied that $338 to paying down her debt, instead. Her minimum payment for $38,000 is $1,140 (most Chase cards calculate minimum payments as 1 percent of the balance plus interest). It will take her 487 months, or more than 40 years, to pay off her balance at that rate (assuming her interest rate is 20 percent). If she adds the extra $338 to her minimum payment, it will take her just more than three years to pay it off.

In any case, Chase isn't the only issuer eliminating these plans, which also suspends consumers' credit card payments if they experience a qualified hardship. Bank of America got rid of a similar plan last year and offered existing enrolled cardholders the same 12-month grace period. Capital One also stopped actively marketing its plan last year.

Hartwick says Chase's cancellation is an effort to simplify its offerings. But the move by Chase and other issuers comes after the Consumer Financial Protection Bureau started looking into these add-on products last year. The CFPB fined Capital One and Discover for how they marketed these products to consumers and ordered them to refund consumers.

So, maybe getting rid of these plans simplifies things for the issuers, rather than the consumers.

What do you think?

Follow me on Twitter: @JannaHerron.

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