Bank of America Corporation
) has announced the decision to discontinue its disputed credit
protection services. These services were the subject matter of a
class-action lawsuit where the plaintiffs accused the bank of
overcharging through unfair means.
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The credit protection services offered cardholders the benefit of
deferring the minimum monthly payments in case of contingencies -
such as unemployment, health issues and other similar reasons -
which stopped them from making the minimum monthly payment. A
third-party vendor executed these services.
The program could cancel up to two times a customer's minimum
monthly payment for 18 months for unemployment or hospitalization.
For other occurrences - such as marriages or divorces - it could
cancel a customer's minimum monthly payment for three.
The reason to revoke these services largely reflects BofA's ongoing
efforts to focus on fundamental activities and improve
profitability. Moreover, these services were highly criticized by
consumer lawyers. These were deemed to be of very little help to
consumers. Further, the sales agents appointed by the banks
misrepresented the pertaining details and enrollment was sometimes
without an approval.
The banks will no longer offer services to new consumers and the
existing consumers will be served free for another six months
Similar Actions by Other Banks
Capital One Financial Corp.
) shelled out $210 million as compensation to regulators who
alleged that the company had adopted deceptive means relating to
the sale of certain payment protection and credit monitoring
Earlier in 2011,
JPMorgan Chase & Co.
) withdrew its credit protection services for new customers.
However, the existing customers will continue to enjoy the benefits
of these services.
) has, for the time being, stalled all its credit services to
complete the ongoing review of its overall sales activities.
The discontinuation of these services will affect BofA's financials
to some extent. However, over the long term, the bank stands to
gain from the closure of such non-core activities. This will help
BofA to concentrate better on fundamental activities, thereby
improving its top line as well as bottom line.
Currently, BofA retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term 'Neutral' recommendation on the stock.