Red - Column for 3/7

Subtle Scams

I recently had got a telemarketer call from my credit card company. They started by telling me about the rising problem of identity theft, and how they were going to offer me *free* a copy of my credit report...

I said something like "gee, that's nice of you." ... and waited for the other shoe to drop.

Well to get this lovely (approximately $9.00) gift all I would have to do was sign up for credit insurance. Now mind you, this is not credit insurance that protects me from the aforementioned identity theft (which is good I guess, because I'm already legally protected against fraud after the first $50 and so that would be even more of a scam). This "credit insurance" protects me if I get laid-off.

So if I get laid off (not fired or quit) they will pay my interest payments (again ... not pay off my card but make it essentially 0% interest) for a measly 89 cents per month per $100 on my card.

Hmmm...That is essentially another 10.7% interest. It would literally double the rather moderate interest rate (9.99%) I pay on that card. (And I get 0% interest offers all the time, that don't require that I be laid off)

"Um...no thank you"

Now, two years ago they had sent me a paper version of the same scam, and I read the fine print. At the time it would have added only 7% to my interest rate. I guess they must have gotten cockier over the years. I still remember the details, because they were so evil...

Again you had to have been laid off, and they would only pay the interest on your balance. In addition, when you called to activate it, they would freeze your card and effectively shut off your credit. You had to have been paying this higher rate of interest for at least 6 months and the "credit insurance" cut off at something like 18 months.

So the only way they would ever have to pay out more than they took in was if someone who had paid double interest for exactly 6 months, got laid off, and then remained "insured" for at least 6 months. And, of course, the vast majority of people would just pay in and never use the "credit insurance."

Basically, it is a way of charging a high rate of interest to people, (sometimes, I imagine, a rate above the legal limit, which I think is probably about 25%) to do something that the credit card company would probably negotiate for free if the same laid-off person went to a credit counselor. (It is not in their best interests to have to write off a debt that would eventually be paid off when someone gets reemployed)

God, they must be making a mint.

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