Consumer advocacy groups are now banding together to put pressure on Congress to question the marketing tactics of a specific type of credit card that targets those with poor credit and then piles on an outrageously huge number of various fees. These cards are referred to as “fee harvesting” cards because of the exorbitant fees that saddle customers with and are targeted at sub-prime borrowers that find it difficult, if not impossible, to obtain traditional credit cards.
According to a report that was just released this past Thursday by the National Consumer Law Center, these cards typically utilize bait-and-switch offers to prey on consumers. In addition, they rely upon debt-collection strategies that are very aggressive as well as offering add-ons that are deceptive to the consumers. Some of these add-ons include providing the card holder with supposed credit protection and essentially strong-arming unwanted and unneeded memberships upon the cardholders.
One card being scrutinized by the consumer advocacy group is being offered by First Premier Bank out of South Dakota. This card offers a scant $250 credit limit as well as $178 in immediate debt once all of the fees are paid, which include a $95 program fee, a $48 annual fee, a fee of $29 to set up an account, and a $6 monthly fee to participate in the program. So, what it comes down to is consumers have to pay $178 in fees just to borrow $72.
As the director of the National Consumer Law Center puts it, the terms of this card are “technically legal, but morally indefensible.”
Another credit card issuer out of Atlanta by the name of CompuCredit has also cashed in tremendously on fees. Since introducing the card last year, the company has already collected over $400 million in fees and is owed $973 million in additional fees. In order to get the card’s name out there, on the other hand, the company only had to pay about $160 million to market the cards. Sure, $160 million is nothing to sneeze at, but it’s quite small compared to the windfall the company’s collected in just a year’s time.
In addition to the start up fees, annual fees, and monthly fees, these credit cards also typically charge fees in order to increase credit limits. One card issued by Applied Bank, for example, charges a $100 fee just to increase the limit. Similarly, since those that apply for these cards are more likely to exceed their limits and to make their payments late, these egregious fee harvester credit cards abuse consumers by collecting more fees in more ways than one can imagine.
One disturbing example is from a man by the name of Gabor Marsi. Marsi claims that he obtained a credit card from a major card issuer after having to file for bankruptcy because of medical expenses. He claims he paid the $50 application fee, but declined the Diner’s club membership. After his wife purchased a baby crib for $130, they discovered that the company had still charged them the fee for the Diner’s club membership they didn’t want, causing the couple to exceed its credit limit, resulting in even more fees. In the end, they paid $700 to finance a $130 crib. Today, the couple is in the midst of a lawsuit with the card issuer, which claims the couple owes them $3,500.
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