Bank Of America Exits Debt-Protection Products Amidst Industry Scrutiny

By Valli Meenakshi Ramanathan | August 22 2012 9:20 AM

Bank of America Corp. (BAC) discontinued credit protection services to customers as it came under scanner for allegations of customer enrollments through improper practices and charging customers without consent. A class action suit is reportedly pending against BAC on the issue.

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The logo of the Bank of America is pictured atop the Bank of America building in downtown Los Angeles November 17, 2011.

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The services came under regulators scrutiny as they suspended credit-card customers' minimum monthly payment in the face of adverse hardship or job loss, on provision of a monthly fee. Also known as debt-cancellation products and payment protection services, they led to class-action suits against several large credit-card issuers, Dow Jones reported.

Reuters reported that a $20 million settlement of the lawsuit that received preliminary court approval is pending final approval.

Apparently other lenders, including Capital One Financial Corp reached a $210 million settlement with regulators last year, over credit monitoring products.

Betty Riess, Spokeswoman, Bank of America, confirmed August 20 that the bank has stopped offering products called Credit Protection Plus and Credit Protection Deluxe to new customers from August but continues to provide them to existing cardholders enrolled in the services. However, the bank plans to discontinue services to existing customers next year, Riess added.

The decision to withdraw the products provided by third party vendors is part of the bank's "larger strategy to streamline our business," Reiss told reporters, according to Dow Jones.

Once settlement is approved, court documents indicate that affected customers are likely to receive $50 or $100 compensation, based on their circumstances. The BAC's website states that "Credit Protection Plus," service cost 85 cents per $100 on customer's monthly balance up to $25,000.

The program was constituted in such a way that it cancelled up to two times customer's minimum monthly credit card payment for up to 18 months for job loss or hospitalization. For occasions such as marriage or divorce, it could cancel customer's minimum monthly payment for three months.

JPMorgan Chase & Co spokesman Paul Hartwick confirmed to Reuters that it stopped new enrollments in payment protection program in October. Citigroup spokesman Sean Kevelighan said telephone sales of debt protection products were paused, though online sales continue through mail.