Consumers who apply for credit card offers often expect to take advantage of the incentives that come with them. However, it seems the seven million UK citizens who paid for the add-on bonus of credit protection they never got to use will be looking at a refund sometime next spring. Also referred to as payment protection insurance, many credit card customers bought such plans to ensure their payments would be covered in the event of an accident, illness or unemployment.
Unfortunately, when consumers turned to their coverage in their time of need, they found there were so many exclusions it was impossible to make a claim. Having paid into the planâ€”sometime for yearsâ€” customers and consumer advocates alike loudly objected to the unfair practice. Recently, over a dozen financial entities consisting of banks, insurers and credit card companies were ordered to compensate their customers.
While this led to some credit card companies doing away with credit protection insurance, others have taken the time to revamp their policies. Now, banks and credit card companies are developing a whole new type of credit protection coverage that consumers will be able to participate in at absolutely no charge.
Referred to as a “payment waiver” by some, consumers who find themselves unable to work because of an unexpected illness, accident or job loss can have their credit card payments automatically covered for 6 to 12 months. Even though the plan is still in development, consumer advocates are cheering the turn around because of the peace of mind consumers will receive with such a benefit.
At the same time, there is speculation that consumers will shy away from such programs at first. However, there is a belief payment protection plans will gain validity as they begin to appeal to newer, younger customers who apply for credit card offers. With more limited means, they are more likely to make use of the cost-free coverage. It is anticipated that older consumers will fall in line with the same thinking.
In addition, the poor practice of automatically attaching credit protection plans to a cardholder’s account in previous years has credit card companies rolling out a whole new application process for their protection programs. Others plan to offer payment protection upon signing up as a free, automatic benefit.
If and when customers find they need to use the coverage, they will still have to submit the appropriate forms and documentation that proves their claim as legitimate. The requirements will likely vary from one credit card company to another and also depend on whether a customer is facing illness, accident recovery or unemployment. Nonetheless, both the claims and approval process are expected to be easier and much more efficient.
There is some speculation that cost-free coverage may even cause a little bit of competition between credit card companies. Card companies that have kept their credit protection programs in place have gone back and overhauled many of the terms while adjusting their rates to make them more affordable to customers. Yet, the opportunity to have this incentive free of charge on top of other valuable incentives may draw consumers to a competitor.
All in all, credit card companies are looking to provide their customers with credit protection plans that are more customer-oriented. Consumer advocates says this speaks loudly about a financial institution’s concern for the wellbeing of its customers. While it may take time to repair the damage caused by the previous practices attached to protection plans, credit card companies are optimistic that they will be able to strengthen the relationship with their customers.
As for the current situation, the Financial Conduct Authority was able to work out a settlement that returns what consumers paid for their plan in addition to an interest rate of 8% attached to the amount owed. (Consumers who used their credit protection policies will have the amount paid out by the policy deducted.)
It is projected that UK citizens who bought and paid for credit protection insurance from the years 2005 to 2011 will see an average refund of Â£185. The Financial Conduct Authority asserts those who have not received a letter in the mail detailing the process and stating that they are due a reimbursement should be receiving one soon.
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