BOSTON -
The report, "Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers," focuses on the subprime market. One of the "fee-harvester cards" featured in the NCLC report comes with a credit limit of $250. "However, the consumer who signs up for this card will automatically incur a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee-an instant debt of $178 and buying power of only $72," the report states.
It argues that so-called "fee harvesting" is extremely lucrative for certain issuers, pointing to Atlanta-based CompuCredit, which it said during 2006 collected $400 million in fees from a portfolio of fee-harvester cards that by mid-2007 had saddled cardholders with nearly $1 billion in debt. "CompuCredit, frustrated in efforts to get its own bank charter, has marketed fee-harvester cards in partnerships with compliant banks that act as issuers," the report states. "Recently, CompuCredit partnered with Urban Trust Bank, which says its 'mission' is to bring affordable banking services to minority communities. Several small banks specialize in the issuance of fee-harvester cards, including South Dakota-based First Premier and First National of Pierre, and Delaware-based First Bank of Delaware and Applied Bank, formerly known as Cross Country Bank. Some big banks also have big stakes in the subprime market, including Capital One, which has sometimes used the fee-harvesting model, and HSBC."
In one example, the report alleges that Gabor Marsi, a 39-year-old Akron, Ohio, air conditioner repairman applied for and got a Capital One MasterCard after a bankruptcy caused by unexpected medical expenses. Capital One made Marsi pay a $50 application fee and gave him a card with a $200 credit limit. Marsi declined to sign up for a "diner's club" membership, but Capital One "didn't take no for an answer," the report states. "After Marsi and his wife used the card to charge a $130 baby crib, they were shocked to discover that the card had been charged $99 for the diner's club membership, and that the card's credit limit had been exceeded. The Marsis ended up paying $700 to finance their $130 baby crib and are now fighting a lawsuit by Capital One, which claims Marsi still owes $3,500."
The report suggests that federal statutes and bank regulators have preempted state laws designed to prevent lenders from taking advantage of consumers desperate for credit. "This preemption, combined with too much bank-friendly regulation at the federal level and in some states, enables the credit card industry to boost the cost of credit and engage in multiple practices that hurt consumers," it says.
For info: www.nclc.org.
