Is Capital One Payment Protection a Scam?

Q: Capital One asked me to sign up for their payment protection plan. I Googled it and see a ton of complaints alleging it’s a scam and a rip-off. I even saw stuff about some class action lawsuit settlement over it. What’s all the fuss about?

A: If you’re not familiar with payment protection, it’s an insurance-like benefit that Capital One and many other credit card companies offer. The exact coverage varies by issuer, but in a nutshell, what it usually offers is the ability to cancel or defer minimum payments in the event of disability, job loss, and other life events. Some plans will also cancel a balance if the cardholder dies.

Cost vs. benefits?

This optional plan usually costs around 1% of your monthly balance, give or take a few pennies. The Capital One credit protection fee is $0.99 per $100 of the balance on each statement’s closing date.

That may not sound like a lot, but you have to remember that you are paying it 12 times per year. And even if you pay your credit card bill in full, you are still charged the fee since it is calculated using the amount on the statement’s closing date.

So let’s say for 12 months in a row your statement balance was exactly $1,000… That equals $118.00 in fees! Or if you want to think of the cost in terms of an APR, it’s like paying 11.88%.

But are the benefits worth that price tag? Probably not. But this criticism is not specific to the Capital One payment protection plan, but rather all plans regardless of the issuer.

Why all the fuss about Capital One?

So if this isn’t worth it, regardless of which credit card company offers it, then why is Capital One taking so much heat for it? Well, here are some things that the Spinelli class action lawsuit alleged:

  • The plan restrictions were not sufficiently disclosed during pre-enrollment
  • Obtaining benefits for eligible claims was “too difficult”

In this particular case, a settlement with Capital One was reached. Cardholders who were enrolled in the payment protection plan anytime between 1/1/05 and 7/31/10 (or 9/28/03 thru 7/31/10 for those in Florida) may be eligible to collect. Unfortunately, the amount per claimant is only $15 to $63, which has upset a lot of people, who might have paid hundreds of even thousands over the course of that period.

Difficulty canceling the plan. To the best of my knowledge this complaint was NOT part of the class action lawsuit, but a lot of people have claimed it hasn’t always been easy to cancel the payment protection once they are enrolled in it.

Conclusion?

The truth is that singling out Capital One is unwarranted, because this is an industry-wide issue. Many other credit card companies have similar complaints and lawsuits against them for these same allegations.

Whether or not Capital One broke the law with their payment protection plan or there was a “scam” going on, I do not know. But what I do know is that payment plans are usually an unnecessary add-on, regardless of who’s offering them.

Written April 2011

 
Comments
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I just realized I was being charged for payment protection and never authorized it. I never get the extra protection. We have federally insured accounts. Low and behold my credit card payments are going up and up, so I log in to see what the heck is going on. Wondering what this 18.75 dollar charge is. They agreed to refund me 700 and something dollars because I never authorized it. It somehow just got added. Mind you, when I made late payments, it never protected me had I even known it was on there. Complete scam and shameful. Consumers beware.

Danielle- I, too, never consented. Was it a difficult process to be reimbursed? I would like to do the same and wondering if it was a long drawn out process?

I have had capital one since 2008. I cancel their payment protection program and they will automatically add me back on it without my consent. I know others they have done this too as well. They can add it back on randomly after a year of you telling them you don’t want it. I personally think it’s dishonest and that they should at least inform you of adding an extra $10.00 payment that you did not consent to.

Capital One has proven to be spot on in honoring it’s Payment Protection Benefits without hassle or delay. Every situation is different but this is a very cheap price to pay for such a valuable benefit. They do not force anyone to purchase this program and I have used it several times in the past year and they have stepped up to the plate without any question. Capital One is the Best Credit Card company out there and why they come under such scrutiny is certainly beyond me. They are by far the only credit card company that you should have in your wallet. They also do not ‘gouch’ their customers with fees on top of fees like alot of others do. I Love Capital One and respect them greatly.

It is very hard to get rid of payment protection or any other type of plans offered by credit card companies, because the agents are compensated by how many payment protection plans retained. It is part of their performance as well. Credit companies think payment protection is billion dollar business; however just do a quick math, it is not worth at all. I feel sorry for the agents who get paid to sell and retain the plans.