From the U.S. Government Accountability Office, www.gao.gov Transcript for: Watchdog Report: Credit Card Debt Protection Products Audio interview by GAO staff with Alicia Puente Cackley, Director, Financial Markets & Community Investment Related GAO Work: GAO-11-311: Credit Cards: Consumer Costs for Debt Protection Products Can Be Substantial but Are Not a Focus of Regulatory Oversight Released on: March 25, 2011 [ Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the Government Accountability Office. It's March 25, 2011. Debt protection and credit insurance products can cancel or suspend consumer credit card debt under circumstances such as death, disability, or involuntary unemployment. In 2009, consumers spent about $2.4 billion on 24 million accounts for debt protection products. A group led by Alicia Puente Cackley, a director in GAO's Financial Markets and Community Investment team, recently reviewed the marketing of these products and the value they provide to consumers. GAO's Jeremy Cluchey sat down with Alicia to learn more. [Jeremy Cluchey:] What exactly are debt protection and credit insurance products, and how do they work? [Alicia Puente Cackley:] There are really two different products that we're talking about: debt protection products, which are offered by the credit card companies, and that product gives the cardholder the ability to suspend or cancel a part of their obligation to repay a debt in the event of either a death or disability or potential, even involuntary, unemployment and other events too. Credit insurance products, on the other hand, are offered -- it's a three-way process between the credit card company and insurance company and the cardholder. So the insurance company provides an insurance policy that the credit card issuer then offers to the cardholder. And the difference, the major difference between those two kinds of products, is that debt protection products are regulated by the federal government; and insurance, credit insurance products, are regulated by state regulators. And, therefore, those regulations vary a lot more across the different states. [Jeremy Cluchey:] Your report looks at some of the advantages and disadvantages that these products offer for consumers. Can you elaborate on these? [Alicia Puente Cackley:] Sure. There's a number of advantages -- that consumers just have peace of mind. They also have protection of their credit rating in those circumstances. They're also products that are easy to find. They're widely available. And if you're looking for something like that, they're very easy to acquire through your credit card company. On the other hand, they're also relatively expensive in the sense that the fees that one pays on a monthly basis can be substantial relative to the financial benefit that you receive in the event of a financial hardship. [Jeremy Cluchey:] Your team looked more closely at that financial benefit that many consumers receive from these products. Can you expand on that a bit? [Alicia Puente Cackley:] Sure. We acquired data from the nine largest credit card issuers, and we had a third party analyze the data for us because it was proprietary information that they provided. And, from that, we were able to calculate the percentage of total earnings in the aggregate across those nine companies: the percentage that went in financial benefit to the consumer, the percentage that went to administrative expenses and reserves, and the percent that was pretax earnings or pretax profit. And that percentage that goes to the consumer is 21 percent; there's 24 percent in administrative expenses; and 55 percent in earnings, which is a pretty large percentage in general. [Jeremy Cluchey:] Federal oversight of financial products will soon be shifting to the new Consumer Financial Protection Bureau. What steps is GAO recommending that that institution take with respect to these credit card debt protection products, and how could this ultimately affect consumers? [Alicia Puente Cackley:] GAO is recommending that the Consumer Financial Protection Bureau factor into its oversight of debt protection products a consideration of the financial benefits and costs that these products have for consumers so that they consider those things in their regulation, in their examinations of these products. We're also recommending that the Bureau factor into their their consumer education programs the need to improve consumers' ability to understand and assess these products. It's important for them to know what they're buying so that they can make a good assessment of whether it's the right product for them. [ Background Music ] [ Narrator: ] To learn more, visit GAO's Web site at GAO.gov and be sure to tune in to the next edition of GAO's Watchdog Report for more from the congressional watchdog, the Government Accountability Office.