If you do not borrow often or have a less than ideal credit history, there is a fair chance that you are attracted by unsolicited offers on credit cards. You believe that you have very little choice and there is a distinct lack of alternatives. Be warned, however, these cards target sub-prime customers with lower credit scores and can get borrowers like you into deep trouble.
Fee harvester cards
These cards, popularly known as fee harvester cards provide very less limits on credit cards and also charge exorbitant upfront fees which gobbles up the available credit. The interest rate is also effectively increased. The watchdog CFPB (Consumer Financial Protection Bureau) ordered a harvester card company, Continental Finance, to pay back $2.7 million to approximately 98,000 customers who were charged fees which cannot be termed legal in any way. The CFPB also ordered Continental to pay $250,000 as civil penalties, as per a consent order by its director, Richard Cordray. He said that the high fees were very harmful as the cards were marketed towards sub-prime credit consumers. These consumers are frequently economically vulnerable. Continental representatives did not return any calls. The Delaware headquartered company works with credit unions and also banks to issue cards.
It was discovered by the CFPB that Continental breached the CARD (Credit Card Accountability and Disclosure) Act, which, among its many conditions, bans the card companies from imposing 25 percent or more of the limit of credit card fees on customers in the first year of opening the account.
Continental marketed its products under three brand names: Verve, Matrix (NASDAQ: MTRX) and Cerulean (NASDAQ: CERU) and the general credit limit was $300. Consumers, however, were charged $75 upfront, meeting the restriction of CARD Act. Then the company violated laws by charging extra fees spread over a year exceeding the fee cap. The list of fees included a monthly charge of $4.95 for paper billing, which the consumers believed was charged only when they opted for. The reality was that they were charged in the default if they had not instructed the company to unsubscribe them from the paper list. This simple instance underscores the traps consumers can face while trying to get credit.
In a separate report related to fee harvester cards, the National Consumer Law Center observed that fees imposed on such cards usually left consumers with minimal usable credit. It is therefore advisable to read the fees minutely before applying for a card.