Bank of America Corp. stopped selling credit card customers add-on products that halt borrowers' minimum monthly payments in case of a job loss or other hardship.
The move comes as regulatory scrutiny grows for offerings such as debt-cancellation products, also known as payment or credit protection. Such offerings have prompted class-action lawsuits against the country's largest card issuers and led to a $210 million settlement last month between Capital One Financial Corp. and federal regulators.
Bank of America stopped offering products called Credit Protection Plus and Credit Protection Deluxe to new customers this month but temporarily is still providing them to existing cardholders enrolled in the services, said Betty Riess, a spokesperson for Bank of America.
The move to discontinue the products, which are provided by third-party vendors, is part of the bank's "larger strategy to streamline our business," she said, citing the bank's recent moves to exit certain businesses and sell assets deemed non-core.
Capital One's settlement with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency could prompt other banks to eliminate or alter payment protection and other add-on products, such as identity-theft protection and credit monitoring, according to industry insiders. Under the settlement, Capital One agreed to refund $150 million to customers and pay $60 million in fines.
Bank of America and other large banks have marketed payment protection as a safety net for cardholders should they encounter health problems or incur another hardship that prevents them from making their minimum monthly payment. The service is supposed to suspend a borrower's minimum monthly payments for a certain period of time and fees typically range from 85 cents to $1.35 per $100 of outstanding balance each month, the Government Accountability Office said.
While Bank of America does not disclose how much revenue such products generate, the GAO said in a March 2011 report that consumers paid $2.4 billion in fees for payment-protection products in 2009.
The report looked at nine card issuers, including Discover Financial Services, American Express Co. and Bank of America, concluding that a "relatively small proportion of the fees consumers pay for debt-protection products is returned to them in tangible financial benefits.
Bank of America has received inquiries from regulatory authorities regarding ID-theft protection services, "including customers who may have paid for but did not receive" certain services from third-party vendors, the company said in a filing with the SEC earlier this month.
Discover, like Bank of America, settled class-action litigation alleging it enrolled customers in payment-protection services without their consent and misrepresented product features when pitching them to consumers. J.P. Morgan, Capital One and HSBC Holdings PLC have also reached settlements in similar litigation in the last two years.