Fee Riddled Credit Card Scam

A scam implies illegality. Unfortunately, when it comes to credit, it's the wild wild west out there, and what should be illegal is not. Today's NY Times article, Big Fees for Little Credit, shows how some credit card companies are taking people for an expensive ride.

Some issuers of credit cards are “quietly collecting hundreds of millions of dollars in profits selling nearly worthless, predatory credit cards targeting vulnerable consumers, including those with bad credit,” according to a report published this week by the National Consumer Law Center (consumerlaw.com)...

A typical example the law center offered was this: a card issued with a credit limit of $250. After a $95 program fee, a $29 setup fee, a $6 monthly “participation” fee and a $48 annual fee, the consumer winds up with “an instant debt of $178 and buying power of only $72.”

It's called fee harvesting, and it's not just random companies that are doing it. Capital One was listed in the report, though they deny any wrongdoing. CompuCredit is the biggest culprit, collecting $400 million in fees on $4 billion in debt. Again, they deny the charges, and there is a link in the article to NPR in which they defend their practice.

The reality is that predatory lending is a very big business. Until it's properly regulated, the competition between what is morally okay and what stinks to high heaven will be a slam dunk for the latter.