August 27, 2012
In this video, Motley Fool analysts Austin Smith and Anand Chokkavelu discuss the latest move by Bank of America. Under pressure from regulators, it's doing away with the credit protection it offers its credit card clients. This is the program that offers to make your minimum payments if you lose or job or suffer other pre-defined hardships.
Bank of America isn't taking on new customers and is rolling off old ones by sometime next year. Exact figures aren't available by bank, but according to the Government Accountability Office, credit protection brought in $2.4 billion to the industry in 2009. And the programs were probably quite profitable.
Bank of America's credit card cohorts, including Capital One Financial, JPMorgan Chase, and Citigroup are all at least slowing down their credit protection businesses. As with the caps on debit interchange fees and reforms around overdraft charges, banks are losing some of their cash cows in the name of consumer protection.
The danger here for banks is that either they make less profit than in the past or that they take on added amounts of risk. Both need to be watched as Bank of America and the rest press forward.
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