Commentary

Credit Protector -- the scam | February 21st, 2009
When I was checking my (Citicards) credit card statement, I noticed a link for a "free" $50 in Visa gift cards, which I of course clicked immediately. The promotion was for card holders who would enroll in a program called Credit Protector, which I dug into a little bit. Here's what I found...

First, let me describe the program. For paying a $0.85 fee for every $100 on your new balance each month, you get some credit protection benefits. On the surface, it sounds like the premium is only 0.85% on purchases. That's true for card holders who pay the bill off completely each month, i.e. the people who don't need credit protection. But for those who have rolling debt, the so-called new balance includes all of last month's remaining balance. So really, the 0.85% is paid monthly for these consumers. (Program details).

In short, anyone who has a rolling credit card balance and takes this promotion gets scammed. They pay an extra 0.85% every month on every purchase... that is worse than adding 10.2% to a person's APR. The compounding interest for each month actually pushes the the equivalent APR increase closer to 11-14%, depending on the original APR. For instance carrying $9,000 in debt and enrolling in Credit "Protector" will result in $1000+ of extra debt annually.

Basically, this promotion is probably going to land a lot of people who are already in a precarious situation into a worse situation. Those people most interested in credit protection, whatever credit protection really is, will be the bunch who enroll. Little do they know they've been tricked into paying much more to the credit card companies.

So which party really needs protection? And who is to blame for consumers being unable to get out of debt? Is it the irresponsible consumers or the underhanded creditors? I'm sure this article suggests which way I lean.