Credit Unions Still Provide Important Credit Card/Loan Protection
Although the economy is sputtering to regain life and jobless claims are increasing, some financial institutions are ending protective plans put in place to reduce the strife and anxiety consumers experience when they fall on hard times.
Last week Bank of America and a slew of other mega financial institutions announced that they would no longer offer credit protection or “debt cancellation” type add-on products to their credit card line.
Consumers purchase this product in order to postpone monthly credit card payments if the cardholder experiences a job loss or another financial hardship. The add-on product is not free; typically costing between $.85 to $1.35 per $100 of the cardholder’s outstanding monthly balance.
Although the economy is showing signs of life, mega banks may be jumping the gun. The Washington Post/ABC News conducted a poll last week asking a random sampling of adults to describe the nation’s economy these days as being excellent, good, not so good or poor. The vast majority of the 1,002 adults overwhelmingly responded that the economy was at the lowest level--poor.
Additionally, Bloomberg reported last week that jobless claims rose for the second week to a one month high. The Labor Department said that jobless claims increased by 4,000 for a second week to reach 372,000 ending August 18.
Financial institutions are well aware of the state of the nation’s fragile economy. “The economy is growing, but it’s still moderate growth, and the labor market is still weak,” Scott Anderson, chief economist at Bank of the West told Bloomberg. “We’re also getting better numbers in terms of building activity. That’s certainly adding to growth and offsetting some of the weakness we’re seeing from the consumer.”
Interestingly, even Bank of America contends that many companies have a hiring moratorium in place due to the economy. “We are stuck in this mediocre range for claims,” said Michael Hanson, senior U.S. economist at Bank of America. “In an uncertain environment, firms tend not to stick their neck out and make big hiring and investment decisions.”
Knowing full well that consumers need support more than ever, why are the big banks relinquishing access to much needed protection programs?
According to Betty Riess, spokesperson for Bank of America, discontinuing the product is part of a "larger strategy to streamline our business." The product will cease for all customers by the end of next year, Riess adds.
Not every bank plans to slash its program completely. Banks like J.P. Morgan will continue to provide protection to its existing customers but not to new customers.
Credit unions like Andrews Federal Credit Union ($900 million, Suitland, MD) will continue to offer a comprehensive line of debt protection products on numerous loans, including credit cards.
LoanGuard is available on all auto loans, credit cards, unsecured loans and lines of credit as well as home equity lines of credit. Members are educated and informed about LoanGuard during the loan application process, with many opting for the service.
“We’ve definitely seen more people take advantage of our loan protection product and end up using it within the past few years,” says Linda Garboczi, VP/Marketing.
“Most people just opt for it, because during tough financial times and widespread unemployment, people feel as though it’s a no brainer. The cost is minimal but the peace of mind is extensive.”
She explains that the fee is based on the member’s outstanding balance at the end of their billing cycle. “Depending on the balance, the fee could change slightly from month to month,” Garboczi says.
When asked about Bank of America and other mega bank’s decision to eliminate this product, Garboczi says that she can’t speculate why the banks have decided to make this move.
“However, you have to wonder if it comes down more to cost than helping their customers,” she says. “This is coming from a financial institution that tried to administer a $5 debit card fee. So you have to wonder if the banks are really overly concerned with the customer’s wellbeing.”
Protecting the consumer’s wellbeing is a priority for many credit unions. Columbia Credit Union ($865 million, Vancouver, WA) offers debt protection that cancels or suspends consumer loan payment(s) without penalty, added interest, or being reported as delinquent when a qualifying event occurs.
Cyprus Credit Union ($557.9 million, West Jordan, UT) explains a myriad of debt protection options on its website. Scenario options range from loss of life where the credit union will pay the remaining loan balance in the event of the insured member’s death to a combination of loss of life, disability or involuntary unemployment that provides a variety of payment solutions.
Concerned that your big bank may extinguish your debt protection? Find a credit union and inquire about a debt protection program that can provide you with peace of mind.By Gina Ragusa