Credit Card Security Add-Ons? They Help Banks, Not You

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Two big banks have recently been caught collecting fees for services of dubious value to customers of their credit cards.

The Consumer Financial Protection Bureau on Sept. 25 ordered U.S. Bancorp (USB) to return $48 million to 420,000 customers who held credit cards or loans with the bank. The reason? U.S. Bank had charged customers for add-on products such as identity theft protection and credit monitoring services, but the federal agency found that customers didn't receive any services from buying those products.

The CFPB took issue with the way in which U.S. Bank tried to acquire customers for those services. Rather than getting the necessary written authorization for the access to credit information that it would need to provide what it called "Privacy Guard" and "Identity Secure," U.S. Bank simply accepted inadequate enrollment paperwork and automatically started charging fees to those customers' accounts. As a result, U.S. Bank's third-party service provider wasn't able to fulfill its end of the deal, neither monitoring customers' credit nor taking action in the event of certain breaches.

In addition to the full refunds to customers, U.S. Bank will pay $9 million in penalties: $5 million to the CFPB and $4 million to the Office of the Comptroller of the Currency.

The Confusion Over Add-On Services

U.S. Bank isn't the first financial institution that the CFPB has found in violation of laws and regulations covering credit card use. In April, Bank of America (BAC) faced much broader allegations of deceptive marketing and unfair billing practices and eventually paid $727 million to customers, with 1.4 million people who faced deceptive marketing efforts receiving $268 million and the other $459 million going to 1.5 million consumers who enrolled in credit-monitoring products.

CFPB took issue with the way that Bank of America started charging customers during a 30-day review period, and the regulator criticized the misleading enrollment process and erroneous information about benefits that the bank made to potential customers. Like U.S. Bank, Bank of America didn't get the required paperwork to provide identity-protection services. Bank of America's penalty to the CFPB amounted to $20 million.

Mostly Unnecessary Services

In most cases, the monitoring services and identity-theft protection that financial institutions sell aren't necessary. For instance, free access to your credit information is federally mandated, and all you need to do to get it is to visit www.annualcreditreport.com. If you fear that you've been the victim of credit fraud, then you can request a credit security freeze that will prevent unwanted access to your credit information for third parties.

Similarly, although fraud services tout the thousands of dollars that a typical identity thief will reap from a stolen credit card, federal law limits your liability for credit card fraud to $50. Most card issuers don't even charge that much in the event of a breach. As a result, the insurance coverage will usually be largely wasted.

In the end, you need to be skeptical about most add-on services that credit card companies offer to their customers. In many cases, you'll find that the services they promise aren't worth the price you'll pay -- if the company actually provides the service at all.

You can follow Motley Fool contributorDan Caplingeron Twitter@DanCaplingeror onGoogle Plus. Heowns warrants on Bank of America. The Motley Fool recommends and owns shares of Bank of America.To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

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Credit Card Security Add-Ons? They Help Banks, Not You

Managed to get that raise or promotion? Fantastic -- now don't go out there and spend it all immediately. In classic "keeping up with the Joneses" fashion, too many of us see an increase in salary or a sudden windfall (like an inheritance) as an excuse to take our lifestyle up a notch. We buy bigger houses than we need, get the latest gadgets even though ours work just fine,and spring for fancy steak dinners just because we can.

​Instead, whenever your financial situation gets a boost, consider the best ways to put that money to work for you. The truly wealthy are those whose money continues to grow and earn them more, even when they're not actively doing anything with it.

The average American household that carries credit card debt holds a balance of around $15,000. If you're among those who have a credit card balance, you've probably seen the little chart on your monthly statement telling you how much you'll pay in interest over the next several years if you make only the minimum payment. (If you haven't, look at it.) The same chart will also compare that to a "suggested" payment that's slightly higher. 

​Our recommendation? Throw everything you can at paying your balances off as fast as possible. And make sure not to take on any additional debt in the future; if you can't pay for a consumer good out of pocket, don't finance it.
 
We don't demonize student loan debt the way we do credit card debt because we see an education as an investment -- and higher education often is the difference between one income bracket and another. Similarly, many people justify taking out a car loan by stating that they need a car to get to work.

​That said, debt is still debt, and the longer you take to pay it off, the more interest you'll pay. Once you've freed yourself of credit card debt, paying down your car and student loan balances should be next on your list.

Whether it's to handle an unexpected car repair, a sudden illness or a major plumbing problem, you should always have some money set aside to cover unforeseen expenses. Set up a regular monthly transfer from your checking to your savings account to earmark this money before you're tempted to touch it. If necessary, cut back in another budget category (like eating out or entertainment) to free up the funds to save more.

​Putting aside a little each month could prevent you from getting socked with a hefty bill you can't afford and then need to finance.

No matter your age, you should be adding to your retirement funds -- such as your 401(k) or individual retirement account -- each month. Just setting aside money sporadically won't cut it; you need to identify how much you'll need to live on once you stop working and monitor whether you're on track to reach that amount.

​Here's a quick-and-dirty rule of thumb: multiply your annual spending by 25. This is the amount you'll need in your retirement portfolio, if you assume that you'll withdraw 4 percent per year to live on during your retirement. In other words, you'd need $1 million in your portfolio to live on $40,000 annually. Creating a plan will help you make sure you're able to retire the way you envision.
A home is a big investment, and sometimes that investment doesn't wind up netting you the return you thought it would.

The biggest culprit is having too large a balance on your mortgage, which detracts from your own personal stake in the current market value for your home. The sooner you pay this amount down, the better your home equity will be.

​You also want to be careful when purchasing a new home. Buying in a neighborhood that's on the downward spiral or buying the most expensive home on the block, likely won't net you a good return when it's time to sell. Also take care to stay away from custom renovations (like turning the garage into a recreation room), which could negatively affect your resale value. 

Paying high investment fees eats away at your gains. And since your gains compound over time, this creates a domino effect that can really chip away at your wealth. Take a close look at your investment companies' fees and shop around to make sure they're not taking more of your money than they need to be.

If you don't have a long-term investment vision and are simply playing the market, you could seriously undermine your wealth-building potential. Stop paying attention to market fluctuations, media pundits and the stories of your friends and family. Instead, create your own long-term investment strategy that will maximize your overall returns. Resist the urge it play it ultra-conservative (or fall for get-rich-quick schemes) and educate yourself on the best way to make your dollars work for you.

​If you're having trouble making sense of your options or want a second opinion, seek the help of a trusted financial adviser.
Based on your experience and seniority level, education and industry, you should have a fairly good idea how much you ought to be making at your job. If you don't, check out a site like PayScale to get a ballpark figure.

If you're not making what you're worth, you're doing more than leaving money on the table; you're also losing all the compound growth and investment returns that money could be generating for you. Invest in yourself with professional development and continuing education, make the case for that raise or promotion, or seek out a company who will value you higher.

If you don't have proper insurance coverage, you're taking a very big risk that could come back to bite you. Too many people think the worst can't happen to them, but the hard truth is you can't predict the future, and scrimping on sufficient insurance is never a good idea.

Of all the things we're hesitate to part with our money for, adequate insurance coverage should not be one of them. No matter your age, everyone should be properly covered with:

  • Health insurance.
  • Disability insurance.
  • Homeowner's or renter's insurance.
  • Flood insurance (if you live in a flood-prone area).
  • Umbrella liability insurance (especially if you own a small business).

If a spouse or children relies on you for support, make sure you have a decent term life insurance policy, as well.

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