Recent action from the federal consumer watchdog and heavy criticism from public interest groups has led many of the nation's top credit card lenders to rethink the way in which they offer a certain service to borrowers.
As a result of a recent settlement between Capital One Financial and the federal Consumer Financial Protection Bureau, many of the nation's largest lenders are getting rid of credit protection plans, which have been common for years, according to a report from USA Today. Under the recent settlement, the lender had to refund about $150 million it collected from roughly 2.5 million customers past and present, as well as pay $60 million in penalties. The average payout for customers will be less than $100. Originally, the CFPB said that Capital One used high-pressure or misleading tactics to get its customers to sign up for the services when they first opened a new account.
As a result of that action, most of the other five major lenders are now taking the time to rethink their approach to offering these account protection plans, which have been under heavy fire for being unfair to most borrowers, the report said. While such a program was designed and marketed as a way for consumers who run into difficult financial situations - such as losing a job - many who enrolled did not require such protection, or didn't receive the level of help they expected.
For instance, many lenders placed restrictions on who could qualify for protection even after enrolling, and the fine print often dictated that only minimum payments would be covered for periods of between 18 months and two years, the report said. This did not stop interest charges from adding up, meaning that those who qualified for coverage often found themselves in considerably more debt at the end.
But now, all major lenders save for one has either halted offering or marketing these services, begun to review its own policies for doing so, or announced plans nixed the credit protection packages altogether, the report said. Much of this is the result of the financial institutions not wanting to run afoul of the CFPB and incur the kinds of fines one of their major competitors did.
The CFPB has been cracking down on many types of unfair or misleading practices from lenders since director Richard Cordray took office in January. Not only has it increased regulations and consumer protections within the credit card industry - including the introduction of a credit card database as well as a complaint line - but also taken aim at private student lending, home loans, mortgage servicing and other types of accounts that can have massive effects on consumers' personal finances. It's expected that the agency will continue to ramp up its operations significantly as time goes on, adding even greater protections to help consumers more fully understand all aspects of any account they take on.