Is Discover Payment Protection Plan a Scam?
Q: Should I cancel the Discover Payment Protection that I just enrolled in? I Googled it and am frightened to see all these things calling it a scam and even class action lawsuits. What’s up with this?
A: Before we get into whether it’s a scam or not, let’s go over how the payment protection plan from Discover actually works…
How much does it cost?
You pay $0.89 per $100 of your balance each month. When you think about it, that means if a $100 balance was carried for 12 months in a row, you will have paid a total $10.68 ($0.89 x 12). So in other words, you will have been paying what would equate to be 10.68% of your average monthly balance for this benefit… a steep price to pay. Is it worth it or not? We’ll get to that next.
What does it cover?
So what is payment protection for Discover, anyway? It’s a program that defers minimum payments on your credit card account as follows:
Events that qualify for 1 month deferments
With these so called “celebration events” your minimum payment is only deferred for one month; graduation, new job, promotion, retirement, childbirth, adoption, marriage, moving
Events that qualify for 24 month deferments
With these “Hardship Events” you might be able to have your minimum payments deferred for up to 24 months; federal/state disaster, disability, death of a domestic partner, spouse or child, leave of absence, unemployment (if involuntary), disability, hospitalization
An important warning you need to know is that there are a number of qualifications and restrictions. Just because you experience one of these events it does NOT always mean you are eligible. I recommend you read about payment protection on credit cards to learn about some of the eligibility requirements that might be in the fine print.
Events that qualify for cancellation of debt
If you (the accountholder) were to die, you might qualify for your debt to be cancelled with the Discover payment protection plan (up to $25k balance on your enrolled Discover account). But there are restrictions and this benefit is not offered in any states or territories where it is regulated as an insurance benefit. At the time of this review, that means if you are a resident of the following locations you don’t qualify: OR, VI, RI, AK, TN, IA, WI, MT, NV, PR, GU.
Is payment protection a scam or not?
Let’s break the answer down into two parts:
(1) Class action lawsuits: Although none of been recently filed that I’m aware of, in the past few years there have been states that filed class action lawsuits against Discover alleging “slight-of-hand sales tactics” were used to enroll customers in these plans. Whether that’s true or not I do not know and since the cases are still pending, it’s too early to say whether or not that’s an accurate accusation until there’s a verdict.
(2) Overpriced: Meanwhile some people feel the program is not a “scam” but that it’s just a bad deal, because the benefits aren’t worth the cost. If you read up on how credit card payment protection works it is true that these programs are rarely worthwhile. However we shouldn’t single out Discover with this, because almost every credit card issuer sells these plans and they are more or less the same.
Do you have an experience with a Discover payment protection plan, either good or bad? Share your thoughts in a comment below!
Written Sept. 2011
My husband, John, had four credit cards maxed out when he died from a cancer we were not told about by the doctors until it was too late. Most of the charges were medical as he had no medical insurance at the time. Three of the cards were covered by a payment protection plan. I felt so lucky that my husband had the forethought to get this protection. I wish now WE had the forethought to get extra insurance to cover ALL his bills I have had to pay on. Four years later I am still paying on that one credit card not protected. Not easy to do on a “Fixed” income.
I too was scammed by Discover’s Payment Protection Plan. After missing seeing the ‘fees’ for this program for several months, I finally contacted them personally and they said they had me ‘recorded’ signing up for the program. I asked to listen to it, because there isn’t a hair on my head that would even consider a payment protection plan, but they wouldn’t let me listen to the ‘recording’.
I then contacted the Attorney General for Colorado, with NO help. The Minn. Attorney General filed a class action suit against Discover and won. I then contacted a class action lawyer that was starting a suit. I wasn’t excited about using a class action lawyer because I know they get all the money and the real consumers don’t get much, so I didn’t sign up.
I then stumbled upon this site that the Feds, set up to help consumers with credit card and mortgage unethical practices, Consumer Financial Protection Bureau: http://www.consumerfinance.gov/.
I submitted my case and within one week I received an email from Discover that they had credited my account for all charges and interest associated with the Payment Protection Plan.
COOL! Mark ONE up for the consumer, FINALLY!!!
So. I work at Discover right now and they give you a credit card with a $1000.00 limit when you start working there. They treat you just like another Card Member when you call in to set it up even if you tell them your standing like 5 feet away from them. They try so hard to get that Payment Protection put on your account and if you say no they are required to tell you why you should do it. Just asked them, if i am to reach my credit limit the first month with the card and keep it there the whole year and only making the minimum payment, what will i pay in a year for this program? They will have to give you the ugly truth of how much it really is. If you maintain a $1,000 balance you will pay about $100 a year and it will come all at once. Not over time. Sucks when you try and keep your balance down. I suggest getting it if you feel like something might happen because rarely it will and even if it does. how hard is a $40 payment per month? People do really appreciate it though when there spouse dies and they have a remaining debt of 5,000 due immediately from family or insurance. When they don’t have life insurance or this program though. those calls suck.
Hope this helped.