In 2009, U.S. consumers spent at least $2.4 billion in fees for credit card debt protection products that provide them with the ability to suspend or cancel a part of their debt obligations as a result of things like disability and involuntary unemployment. However, a new Government Accountability Office report finds that the credit card companies are making a substantial profit from these fees.
The GAO looked at the debt protection products offered by the nine largest credit card companies in the U.S. and found that the annual cost often exceeds “10 percent of the cardholder’s average monthly balance. In the aggregate, cardholders received 21 cents in tangible financial benefits for every dollar spent in debt protection product fees.”
Meanwhile, the remaining 79% of the money from those fees gets split between administrative expenses (24%) and pre-tax earnings (55%).
Debt protection products will soon fall under the oversight of the Consumer Financial Protection Bureau. In its report, GAO recommends that the Bureau factor into its oversight of debt protection products a consideration of the financial benefits and costs that these products have for consumers.
Adds Alicia Puente Cackley, Director, Financial Markets & Community Investment:
We’re also recommending that the Bureau factor into their consumer education programs the need to improve consumers’ ability to understand and assess these products. It’s important for them to know what they’re buying so that they can make a good assessment of whether it’s the right product for them.