More lenders say cancelation of credit card add-ons coming

In the wake of a slew of regulatory crackdowns on major credit card lenders related to the ways in which they marketed certain products related to consumer accounts, many of their counterparts now say they’re axing similar programs.

In the past few weeks, Capital One Financial, Discover Financial Services, and American Express have all been rocked by massive settlements with the federal Consumer Financial Protection Bureau, and now many major lenders are changing their approaches to certain kinds of account features as a result, according to a report from Bloomberg News. In all, the aforementioned three banks gave hundreds of millions of dollars each to the CFPB to settle claims they marketed expensive credit protection products to consumers unfairly in high-pressure sales calls.

As a consequence of the federal crackdown on this type of marketing, many of the nation’s top lenders, including AmEx, JPMorgan Chase, and Bank of America, say they’re simply going to get out of that kind of marketing in the future, the report said. This is especially true because the CFPB plans to conduct what it has called an industry-wide review of not only how these products are marketed, but also how they work in general.

Reason for the crackdown

The products marketed to consumers were typically described as being a kind of credit protection, but the CFPB says that often they simply weren’t effective enough, and typically led borrowers into more debt, the report said. Essentially, these products were marketed in such a way that many borrowers believed they could fall behind on payments and not worry about costly late fees or penalty rates for a large number of reasons, but in actuality, the safeguards were often very difficult to qualify for.

In all, the marketing and ongoing use of these credit protection services was said to cost consumers as much as $2.4 billion per year, but the federal consumer watchdog believes few actually saw a return on their personal investment, the report said. As a result of the settlements reached with the CFPB, the three lenders have begun to pay back many of the hundreds of thousands of borrowers who enrolled in the programs, as well as dealt with fines from the agency.

The CFPB has been trying to reduce the amount consumers pay for their credit card accounts in general, the report said. In the past, the federal government has limited late fees and other penalties charged to consumers for mismanaging their accounts, and the new agency, which has only had a top executive since early this year, is trying to continue that trend. However, the watchdog has also said that its objections to the programs came about as a result of how they were being marketed, rather than their existence in general. However, it does note that many consumer advocacy groups say they provide subscribers with little actual value.

Lenders unhappy about wind-down

Of course, as with any product that makes the lending industry $2.4 billion per year, major credit card issuers would likely prefer to continue the marketing and use of these products, the report said. However, due to the crackdown in the form of costly fines, many are deciding that discretion may be wiser. As a consequence, nearly all of the nation’s top lenders are significantly scaling back their credit protection plan marketing and use, and many are even shuttering their programs altogether.

“We’re on a glide path to selling fewer,” Discover chief executive officer David Nelms told the news agency. “You’d have to ask regulators whether they want the product to go away or not. From our perspective, we think that they add a good amount of value to some of our customers.”

Discover alone reported in its annual regulatory filings that it made $482.2 million from all its various credit card add-on products in 2009, an increase of 3.8 percent from the year before, the report said. Overall, the $2.4 billion annual figure was according to statistics from the U.S Government Accountability Office, which were compiled in 2009.

Moving forward

While many lenders aren’t happy with the regulatory efforts to curb use of certain revenue streams, others in the banking industry say it might not be the worst revelation in the world in the grand scheme of things, the report said. Kevin McKechnie, who heads the American Bankers Insurance Association, told the news agency that the lending industry is willing to give the CFPB the benefit of the doubt for a while longer.

If you’re worried about how your credit affects all aspects of your finances, you should take the time to order a copy of your credit report. This may help you spot any unfair markings that might be dragging your score down and costing you more.

Posted in Credit Card
Learn how it works

Questions about credit repair?

Chat with an expert: 1-800-255-0263

Facebook Twitter LinkedIn