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Web Letter

For years credit card customers have been offered debt cancellation contracts which would pay off their card balances if they died or became disabled from working. But the states had regulations on credit life and accident and sickness insurance rates which were not federally pre-empted, which limited the rates banks could charge.

To get around the state rate limitations, the banks started bundling the life and accident and sickness insurance with all kinds of unregulated products, such as involuntary unemployment insurance, and requiring that if the consumer wanted the life or accident and sickness insurance he had to purchase the junk coverage as well. These bundled products were sold not only to persons actually eligible for benefits under them, but to everyone... including retired and unemployed people who could not benefit from most of the coverage in the bundle because they were not working at least thirty hours per week.

Before 1990 there was litigation in the Eighth Circuit (First National of Eastern Arkansas vs. Taylor) in which the court held that Arkansas's insurance commissioner could not regulate national banks selling this coverage as if they were insurance companies, but also observing in a footnote that the state's rate-making powers had not been pre-empted and were still in effect with respect to DCCs.

In January 2000 the office of the comptroller of the currency published a request for comments as to whether the OCC should regulate disclosure, notices, contract termination, contract charges and dispute regulation issues regarding so-called "debt cancellation contracts," or DCCs.

In April, 2001, the OCC proposed that all national banks would be required to disclose to consumers "a description of any material limitations on the customer's ability to collect benefits" under a DCC.

In September, 2002 the OCC issued its final regulation on the subject, purporting to strip the states of their regulatory power over credit life and accident and sickness insurance rates on coverage sold by banks, but not adopting any federal maximum rates in their place.

The final regulation eliminated completely the requirement that the bank disclose a description of any material limitations on benefits... such as the requirement that one be working thirty hours per week.

As a result, millions of customers of dozens of national banks that issue credit cards are paying up to 1 percent per month (12 percent per year) for bundled contracts which have extremely limited benefits for those who are retired or otherwise unemployed.

Yet in all the articles I have seen regarding the OCC no one seems to have focused on this problem, which costs consumers literally billions of dollars per year and allows banks to keep up to 90 percent of the premiums and pay out only about 10 percent in benefits. In fact, OCC is now allowing banks to charge that 1 percent per month even if the debt is only suspended and not forgiven. A consumer whose APR was previously 18 percent is now paying nearly 30 percent, but it does not have to be disclosed as an increase in the APR because, in theory, it is "voluntary."

This is a shame and a disgrace.

Sidney L. Moore Jr.

Montezuma, GA

Jan 10 2010 - 12:56pm

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