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Payment protection is a bad buy

Credit cards are taking advantage of the recession to push “payment protection programs” that cancel or defer payments if you’re laid off, disabled or die.

But the benefits these debt cancellation or suspension programs provide are surprisingly limited when you consider the cost. The fine print is also loaded with restrictions and exclusions that make it hard to qualify and collect.

The Center for Economic Justice estimates that cardholders paid an estimated $2.5 billion in fees for debt cancellation or suspension programs in 2003, the most recent year available for those numbers.

Yet the credit card companies paid out only $135 million worth of benefits. They kept 95% of the fees they collected.

These programs are a far worse deal than payment insurance credit cards used to offer. Those were real insurance policies offered by real insurance companies and monitored by state insurance regulators.

The debt cancellation or suspension programs now offered by most major card issuers — including Citicorp, Discover, Bank of America, Advanta and Chase — are not considered to be insurance and aren’t regulated by state insurance commissioners.

Unlike with insurance, you don’t have to sign anything to be enrolled.

A verbal approval is enough. So think twice before answering “yes” to a question from your credit card company about whether you’d like to “protect your credit score” if you become ill or get laid off.

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