Saturday, November 10, 2007

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.

3 comments:

SavingDiva said...

Wow! I can't believe the fees attached to that credit card!

PiggyBankBlues said...

i know! part of me is like who are these people who are paying it, and another part is like i can't believe it's legal to begin with...

ASAP Credit Card said...

Unfortunately, no actual 'regulation' has been passed to end these predatory practices. But recent congressional hearings have pressured some of the largest issuers to take action. Citi and Chase have both ended 'universal default' - a policy which lets credit card issuers raise your rate if you've made a late payment - even with another issuer! They've also eliminated some other questionable practices and fees.

Some issuers are worse than others - but hopefully the recent changes are a positive move in the right direction...

We'd love to get your feedback. We recently started a poll on the Worst / Best Credit Card Issuers. Feel free to stop by and give us your opinion.