Monday, November 21, 2011

How Credit Protector Insurance is used by the Credit Card Companies to siphon wealth from the consumer.

Credit Card companies that sell credit protector insurance are periodically sued and agree to pay fines (although the credit card companies do not agree to any wrongdoing) by both consumers and state attorneys general.

One wonders what would motivate credit card companies to keep selling the credit protector insurance product that regularly results in fines and penalties that run into the tens of millions of dollars?

The answer is that although credit protector insurance is called "insurance", the credit card companies have somehow magically lobbied our politicians so that credit protector insurance is not regulated by any insurance commission, agency, or required to follow  insurance guidelines regarding the ratio of money taken in to what is paid out via claims.

Credit protector insurance, if they wanted to, could pay out as little as one percent of the total amount of money they charge per year for credit protector insurance to their customers. Credit Protector insurance reportedly grosses 5 BILLION dollars per year. 

If the monthly accruing finance charges are added in, this amount could jump anywhere from 5 billion a year to 5.5 to 6.5 billion dollars a year. Factor in that some people end up over their credit card limit because of a credit protector charge and they could see their ENTIRE credit card rate hiked to as high as 30%!

Additionally, the forgiveness of either the principle payment or the interest rate charge when a claim is made by a credit protector insurance policy holder is a form of barter, yet it could possibly be a way to camouflage income since the interest rate forgiveness can cancel out that months payment, yet the payment was made anyways! 

It appears to me that Credit Protector insurance is a 5 to 7.5 billion dollar a year insurance business that appears to be accountable to no one but the lawsuits filed by the public and the state attorneys general. 

Unfortunately, while Credit Protector insurance lawsuit settlements might help reign in some of the bad credit card behavior, the settlements appear to have not steered the insurance agencies into regulating credit protector insurance programs.

Lack of accountability to an insurance agency by the credit protector insurance programs might be one of those gotcha situations that justify the Occupy Movement since they ultimately result in the loss of billions of dollars a year in wealth for main street and the 99%.

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