Under Pressure, Credit Card Upsells Disappearing

PHOTO: Credit cardsDaniel Acker/Bloomberg via Getty Images
American Express, MasterCard and Visa cards are displayed shown in New York, in this May 18, 2010 file photo.

When it comes to paying extra money for services from their credit cards, many Credit.com readers admit to having mixed feelings. Are things like debt protection, credit monitoring and identity theft protection valuable products? Or are they overpriced services that offer little real value? One reader whose identity was stolen twice now pays for an ID theft protection service. He wonders whether he needs more protection, and whether it's worth the money.

"I have also considered using credit insurance, but the fees seem really exorbitant right now," the reader said recently in response to a Credit.com story. "Sort of like buying a latte every day even though you should save that extra money."

That indecision isn't just happening to Credit.com readers. It's affecting some of the nation's largest banks, too. After years of offering a full range of credit card add-on services, the three largest banks are pulling back. Chase closed its debt protection plans to new enrollments this March, says Steve O'Halloran, a Chase spokesman.

Bank of America stopped offering credit monitoring services late last year, and closed down its debt protection and identity theft protection offerings in August, Betty Reiss, a BofA spokeswoman, told Credit.com. Also in August, Citi announced that it would stop selling debt protection services connected to its credit cards, says Spokeswoman Emily Collins. All of which leaves the banks in a staggered position, with some banks offering some add-ons, others not, while most continue to offer add-on products for existing customers but declining to sign up new cardholders.

New guidelines

Spokespeople for Chase and BofA declined to say why their banks stopped offering add-on products. Citigroup was a tad more upfront. "(W)e decided to stop selling debt protection products as we complete reviews in light of new regulatory guidelines," Spokeswoman Emily Collins said in an email.

What Collins is talking about is a major crackdown by the Consumer Financial Protection Bureau on allegedly deceptive practices used by some major credit card issuers to market and sell these add-ons. The bureau's first-ever enforcement action, announced in July, found that Capital One deceived customers by claiming falsely that debt protection products would build their credit scores, neglecting to mention that the services were optional, and marketed add-ons to people who were ineligible (selling unemployment insurance to people who already were unemployed, for example). Capital One agreed to pay $140 million to two million victims, plus another $25 million in fines.

In October, the bureau reached another settlement, this time with American Express, finding that three of the company's subsidiaries used deceptive marketing to sell add-ons, and used illegal age discrimination to disqualify certain potential customers, among other findings. American Express will pay $85 million to 250,000 customers, and $27.5 million in fines.

The bureau also sent a warning letter to financial institutions, telling them that federal regulators are now on the lookout for other companies that try to sell add-on products to customers using "deceptive promotional practices" and "failing to adequately disclose important product terms and conditions," while enrolling people "in programs without their affirmative consent."

What's the value?

All of that adds up to a lot of scrutiny for products that often fail to provide significant value to consumers, many credit industry analysts say.

"It's well-known that many of these products have little value," says Barry Paperno, a credit scoring expert and Credit.com's community director.  "Some of these products prey on people who don't understand" the terms.

Some add-on products, such as credit monitoring, can be useful, especially for people like the recently divorced or victims of identity theft who worry that someone might try to hijack their credit, says Gerri Detweiler, Credit.com's consumer credit expert.

Other add-ons such as debt protection, in which the credit card issuer promises to cover minimal balance payments if the cardholder becomes disabled or unemployed, for example, often come with so many fees and so many hidden barriers to collecting benefits that they often cost more than they give back, Detweiler says.

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"I'm not a big fan of debt protection," says Detweiler. "I can't remember ever recommending that product to a consumer. Those plans are often too expensive for the little benefit they provide."

How to decide

How to tell the difference between a worthwhile credit card add-on service and one you should probably skip? Here are Detweiler's three tips on how to decide.

1. Shop Around. Many consumers don't think about buying products like debt protection or credit monitoring until they receive phone calls or marketing materials from their bank or credit card issuer. When confronted with the choice, and especially with some high-pressure sales tactics, many say yes right away.

That's almost always a bad idea, Detweiler says. If this is your first time hearing terms like "debt protection," that's a good signal to slow down. Maybe your credit card issuer really does offer the best plan out there. Maybe some other company does. Or maybe you don't need the product at all. The only way to know is to investigate.

"Your best idea is to shop around and not automatically take what your credit card company is offering you," Detweiler says.

2. Ask for details. Maybe your credit card issuer really does offer the best program. But you'll only be able to tell by getting all the details, Detweiler says. Especially when it comes to insurance-like products, including debt protection, make sure that you are not automatically excluded because of your type of employment or pre-existing conditions. "If consumers really understand what they're buying and they know they have a choice of where they can get that service, then I'm OK with offering it to them," Detweiler says.

3. Stay on them. Since many add-on products cover events far in the future, such as loss of employment or inability to make minimum payments, it's important to make sure that you keep track of the programs over time. If your issuer sends you paperwork with new terms and conditions, read it and tuck it into a file folder. If someday you need to redeem the services, make sure you follow the issuer's instructions for how to claim benefits. And if you are unexpectedly denied, report the company to federal regulators including the CFPB. As we know from the bureau's recent investigations and letters to the industry, federal regulators are on the lookout for abuses.

"Clearly, customers have to know what they're getting into, and know that they can shop around for the product that's right for their situation," Detweiler says.

Christopher Maag, contributing writer for Credit.com, graduated with honors from the Columbia University Graduate School of Journalism, and has reported for a number of publications including The New York Times, TIME magazine and Popular Mechanics.