Credit cards are widely used in the United States. Seventy-eight percent of consumers had a credit card in 2008. As of 2009, credit cardholders had more than $800 billion in outstanding debt on roughly 600 million credit cards, according to Federal Reserve estimates. More than 6,000 depository institutions issued credit cards as of 2009. However, as seen in table 1, the great majority of credit cards are concentrated among nine issuers. These issuers accounted for approximately 85 percent of outstanding general purpose credit card balances nationwide in 2010. As of 2010, each of these nine issuers offered debt protection products. Debt protection products suspend or cancel all or part of a consumer’s obligation to repay an outstanding credit card balance when a qualifying event occurs. These events may vary across products but generally include disability or death of the cardholder and may include events such as unemployment. Depending on the product’s terms and conditions, a qualifying event may trigger cancellation of the total balance or the minimum monthly payment, or it may simply suspend the minimum monthly payment for a period of time. Debt protection products are banking products that are directly sold by credit card issuers to consumers who hold a credit card with them. The issuer charges fees for the debt protection product, typically on a monthly basis. Consumers may buy the product when they apply for a new credit card or can add it to an existing credit card account. New credit card applications often contain a box that consumers can initial or insert a checkmark in if they want debt protection, and existing account holders can typically purchase the product by telephone, mail, or through the issuer’s Web site. Because most major credit card issuers are structured as depository institutions, federal banking regulators oversee their activities, including those related to debt protection products. As the national bank regulator, OCC oversees seven of the largest nine issuers offering debt protection products––Citibank (South Dakota), N.A. ; Bank of America; Chase Bank USA, N.A. ; Capital One; HSBC; Wells Fargo Bank, N.A. ; and U.S. Bancorp. FDIC oversees Discover, which operates as a state-chartered bank. American Express has two bank subsidiaries that offer debt protection products to consumers––American Express Centurion Bank, which is a state-chartered bank and is therefore regulated by FDIC, and American Express Bank, FSB, which is a federal savings association and is therefore regulated by OTS. Public information about the debt protection product industry is relatively scarce. Credit card issuers are not required to report information about these products in Call Reports and Thrift Financial Reports, which serve as the primary publicly available sources of financial information regarding the status of the U.S. banking system. Credit insurance is insurance coverage sold in connection with a loan, credit agreement, or credit card account. Credit insurance products typically bundle together several individual forms of credit insurance, such as credit life, credit disability, and credit involuntary unemployment insurance. Unlike debt protection products, which are two-party arrangements between a credit card issuer and a consumer, credit insurance is a three-party arrangement involving an insurance company, a credit card issuer, and a consumer. An insurance company generally sells credit insurance as a group policy to the credit card company, which in turn offers the product to its cardholders. A cardholder who enrolls in credit insurance typically receives a certificate of insurance, which provides evidence of coverage, rather than an insurance policy. The consumer typically pays monthly premiums to the insurance company, and if a covered event occurs, the insurance company takes over the consumer’s credit card payments for a specific period of time, or if the cardholder dies, pays part or all of the outstanding credit card balance. Like other forms of insurance, credit insurance is primarily overseen by state insurance regulators, and regulations governing it may differ across states. In recent years, debt protection products sold in conjunction with credit cards have largely displaced credit card credit insurance. The two products tend to offer consumers the same benefits, however, canceling or taking over credit card payments during qualified events such as disability. Ten years ago, the largest credit card issuers rarely offered debt protection products and instead offered credit insurance, but today most issuers sell primarily debt protection products and rarely offer credit insurance to new customers. In 2009, cardholders paid approximately $2.4 billion in fees for debt protection products, according to data from the nine largest credit card issuers. The products were associated with approximately 24 million credit card accounts with an estimated $42 billion in outstanding debt. Overall, about 7 percent of the nine issuers’ credit card accounts were covered by debt protection products. In 2009, consumers bought approximately 6 million new debt protection products, 73 percent of them for existing credit card accounts and 27 percent for newly opened accounts. The three insurance companies that provided us with data on credit insurance represented about 30 percent of the open-end credit insurance market and maintained approximately 2.7 million credit card credit insurance packages in 2009. These three companies reported to us that they sold 44,114 new packages in 2009—about 1 percent of the total. All other packages were originally sold in earlier years. The three insurers told us that their earned premiums for credit insurance had declined from $757 million to $186 million, or by 75 percent, between 2001 and 2009. Credit card issuers have shifted from credit insurance to debt protection products largely as a result of differences in the way the two products are regulated. Federal regulations for debt protection products apply nationwide, while state laws governing credit insurance can differ across states. According to representatives of credit card issuers, the credit insurance industry, some consumer organizations, and two government regulatory agencies, federal regulation allows for the following: Uniform regulation and marketing efficiency. Federal regulations for debt protection products apply nationwide, while credit insurance, like other insurance products, can be subject to different state regulatory regimes. As a result, one debt protection product can be offered nationwide, which issuers’ representatives told us allows the issuers to offer uniform pricing, terms, and conditions. In addition, the representatives told us that issuers can offer their products to consumers through multiple marketing channels more efficiently than they could for credit insurance. Flexibility. Issuers can generally structure debt protection products more easily, consistently, and quickly than they can state-regulated credit insurance, and can offer a broader array of products. Issuer representatives cited the desire for more flexible products that meet cardholder needs as a reason for their decision to shift from credit insurance to debt protection products. Potentially higher earnings. Representatives of regulators and one consumer group noted that debt protection products offer more potential for earnings than credit insurance. This may be in part because of the absence of price controls that states generally impose on credit insurance rates and the nonuniformity of state regulation. In addition, because credit card issuers sell their debt protection products directly to cardholders, they do not have to share product earnings with an insurance company and can retain more of the fees. Debt protection products cancel or suspend some or all of a cardholder’s debt after the occurrence of certain qualifying events (see fig. 1). All of the nine largest issuers’ primary debt protection products include a cancellation benefit, and four of these products also include a suspension benefit: Cancellation benefits forgive some or all of a cardholder’s debt. These benefits may cancel the total credit card balance if the cardholder dies or may cancel the minimum monthly payment for a specific time during a period of unemployment, for example. As a result, debt cancellation benefits reduce the cardholder’s account balance by the amount of debt being canceled. Suspension benefits allow a cardholder to skip the minimum monthly payment without penalty and without accruing interest for a specified time period. Debt suspension does not reduce the cardholder’s account balance. These cancellation and suspension benefits are triggered by certain events. Benefits vary among products, with most debt protection products covering loss of life, disability, involuntary unemployment, and leave of absence from employment. Some products also cover other events, such as the birth or adoption of a child, marriage, relocation, divorce, hospitalization, call to active U.S. military duty, retirement, loss of a spouse or child, or natural disaster. At least one issuer also includes an emergency payment benefit, which cancels the minimum monthly payment once per year for any reason. Another issuer includes a benefit that allows cardholders to suspend one monthly payment per year in months that include specific federal holidays. Each product offered by the nine issuers covers a different number of events, ranging from 4 to 21 events. Some products allow benefits to be triggered by events affecting individuals other than the primary cardholder, such as the cardholder’s spouse or domestic partner, other authorized users of the card, or the highest wage earner in the cardholder’s household. For example, benefits could be triggered by the involuntary unemployment of the cardholder’s spouse. Debt protection product fees are generally charged monthly and are based on the cardholder’s outstanding balance. Fees for the nine largest credit card issuers’ debt protection products range from $0.85 to $1.35 per month for every $100 of the outstanding balance. For example, if the product fee was $0.90 per $100 of the outstanding balance, a cardholder with an outstanding balance of $500 in a given month would pay $4.50 ($0.90 x $500/$100) for the debt protection product that month. Because the fee depends on the card balance, the fee for the product can vary from month to month (see fig. 2). The debt protection product fee is charged whether or not the cardholder pays the card balance in full, but accounts with a zero balance are not charged a fee.