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 or last updated in 2013