Card Protection Service Is No Plastic Panacea

It’s the rare charge card that doesn’t offer customers card “protection.” Most pitch a lot of peripheral services, but the first, and seemingly the simplest, is the promise of help if cards are lost or stolen--including notification of all issuers involved and arrangement for replacements. “I keep hearing about the growth of credit card fraud,” a New Jersey businessman says, “and I figure there’s more chance my cards will be stolen. They take care of everything if that happens, don’t they?”

They may, and then again they may not. They may also do things with these lists of cards that they don’t advertise.

These services are usually provided by outside contractors but come with the intrinsic recommendation of the card-issuer. After all, says Spenser Nilson, whose Nilson Report covers the credit card industry, “when an offer comes from your bank, you believe it.”

The service does seem undeniably helpful. For an annual fee of $6 to 15, and usually $12, the service will register all of one’s different cards, including those of a spouse and any dependants under 25. Notified of any loss or theft, the service will notify the card issuers and request replacements. It may also report address changes to the whole list. “Better to make one toll-free call,” says the New Jersey man, “than have to look up and call all those individual companies.”

Speed Hard to Match

It may even work as advertised. One California subscriber reported her dozen cards stolen after a mugging; the next day, she checked one bank, one department store and American Express and found them already informed. Bank of America promises that its SafeAmerica service will telex card issuers within an hour of the consumer’s call--a speed that few consumers could match. Moreover, “consumers may forget one or two cards,” says Anne Kortlander, manager of B of A’s ValueAmerica programs; “here you have all your cards listed in one place.”

The services appeal most to people with lots of cards. The businessman above has “25 or 30.” A banking executive signed up for American Express’ service when she started traveling with “a huge number of cards, separated into business and personal use.” Many services also offer traveling card holders up to $1,000 in emergency cash or airline tickets.

The convenience of such a service, when needed, is unarguable. Many people, however, question the need.

For all the publicity about credit card fraud and stolen cards, fewer than 2% of the nation’s 100 million card holders suffer a loss or theft in a year. Even among registration service subscribers, who are perhaps “more conscientious about reporting,” says Robert May, president of Credit Card Sentinel in Chatsworth, the figure is only 7.5%.

Most consumers don’t have many cards to report: The average number owned is 7.1, says Nilson. The average number lost by his subscribers, says May, is five. Furthermore, this is one of those rare instances in which oral notification is acceptable and, as one consumer points out, people could easily keep for themselves a list of the requisite telephone numbers.

Some people want the service because they’ve read the small print saying that they may be liable for $50 of fraudulent charges made before they notify the card-issuer and they believe that if they subscribe to a service they can, as B of A advertises, “waste no time or energy worrying about all the legal procedures you must follow to avoid liability.” They’re wrong: Most services (including B of A’s) assume liability only after they’re notified.

Many Already Covered for Liability

But liability may not be a problem. Many people are already covered under a homeowner’s policy. State Farm, for example, the nation’s largest writer of homeowners insurance, covers up to $1,000 of such liability, or 20 cards’ worth (and, incidentally, receives few claims).

Moreover, the liability may be arguable. A victimized consumer might well argue, suggests one lawyer, that a merchant hadn’t adequately checked signatures or identification.

It may be the thought of making such liability stick that has everyone in the industry adding, sotto voce, that consumers are rarely pursued for that $50. It’s also the time involved: “They’re not going to take you to court for $50,” says Nilson, “when it might cost them $2,000.”

At $12 and $15, the services may be overpriced. This is a business, says one brokerage analysis, of “extremely high profit margins.” A service pays out (Nilson’s estimate) 20% of its take to “endorsing” card issuers, covers both marketing and service costs, and may still clear 50%. In fact, SafeCard Services, the industry leader, has pretax profits of 46% and 25% after taxes.

Consumers may also get an unexpected dividend. Treating the registries as mailing lists, some protection companies pitch subscribers other products, or sell their names (plus credit limits, ages and telephone numbers) to companies that will. Thus, says an ad offering lists from the Credit Card Service Bureau (B of A’s protection provider), all those people are not just buying protection but are “improving the cash flow of happy mailers, coast to coast.”