Peter Boys, CAFA The Financial Coach
CBC’s “Go Public” continues to do excellent investigative reporting and recently they caught our mainstream banks behaving badly. They were misleading and upselling customers on pricey credit card insurance, known as “balance protection insurance.” They charge a hefty premium (typically around $1 per $100 balance) to “protect” cardholders from missed payments as a result of job loss, illness, disability, or death. Balance protection insurance does not cover the balance, only the minimum monthly payment. The terms of your agreement may be explained properly in the fine print but to necessarily in the marketing.
CBC took their hidden cameras into BMO, Bank of Nova Scotia and CIBC branches in Toronto to investigate how bank employees market balance protection insurance when a customer signed up for a new credit card.
CBC also spoke to a number of unhappy customers with Canada’s big banks who said employees signed them up for balance protection without their knowledge or misrepresented the product. For example, one bank employee offered balance protection insurance but when she was asked for details clearly had little grasp of the product she was selling. Another bank employee inaccurately claimed the coverage would pay off an entire credit card balance if someone lost their job. And another added balance protection to a credit card before the customer had a chance to decline the insurance.
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As one 72-year-old woman found out, their card’s plan came with so many exclusions that it was very difficult to make a claim. Her husband had suffered a stroke that left him incapacitated and unable to make his payments. The credit card company demanded payment and refused to allow her to make an insurance claim on her husband’s behalf. The company did eventually settle, but only after CBC contacted them about this issue. A statement showed that he was paying $105 a month for the insurance.
Employees from the banks have written to CBC admitting that they have secretly tacked on this insurance as it earns them sales revenue and to meet quotas. Some banks send you a letter saying that they have put the insurance on your card for a free trial and you can cancel later if you are not happy with it. I personally experienced this with a credit card company who added this coverage on when I applied for a credit card. I ended up paying the monthly insurance premium for several months before I realized what had happened. I applied for a full refund and got it.
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Canada’s Financial Watchdog calls balance protection insurance “problematic”, “high risk for consumers” and often “sold without proper explanation”. It is the most expensive form of insurance. Often consumers have been told that there is no fee if their balance is paid every month yet a fee shows up on their statement.
In the U.S., U.K. and Australia, some banks have stopped selling the insurance after they have been fined billions of dollars for misleading consumers.
So, first off, check credit card statements and make sure you are not paying for balance protection insurance. If you want to make sure you can pay your bills in case of an injury, illness or death, look into investing in good personally owned life, disability or critical illness insurance. Balance Protection insurance is expensive and often inadequate.
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