Credit card companies make their money in a variety of ways. First, they make money by charging high interest rates on the money that they loan. They also charge a variety of fees for using the card, for late payments and for card maintenance.
During the recession, many credit card companies also started selling add-ons in addition to their traditional services. These add-ons were sold to customers as protection plans in case unforeseen events occurred. For example, these products claimed to protect consumers in cases of job loss, identity theft and other difficult situations. These products would offer debt cancellation and other services in exchange for a fee for those covered under the plan.
However, many consumers quickly found that the credit card companies were not honoring these services despite being paid for them. People found that they were not getting all the benefits that they had been promised. Many consumers were then left paying for credit card debt during difficult times in addition to having paid for the plans. Following lawsuits by consumers, many companies have stopped selling these products. Federal officials have also questioned the legitimacy of these programs and have called them deceptive.
Many banks have also settled these lawsuits. Reports claim that banking giant Bank of America has reached a settlement in a lawsuit over these products. The company must now refund $738 million to consumers who used these add-ons, plus another $45 million to U.S. regulators in penalty fees.
Settlements, like this one, may help some people who were tricked into using these scam programs. However, it will likely do little to erase all of their credit card debt. Credit card companies are often aggressive in collecting debt and in hooking consumers to their products. New York residents struggling with credit card debt should understand their legal options and rights. With the right help, people can ensure they are not being unfairly treated and may be able to erase their debt.
Source: BBC, “Bank of America in $783m settlement over credit card practices,” April 9, 2014