While the credit card crisis continues, credit cardholders are facing numerous financial challenges ranging from sky high interest rates and fees to credit card limits dropping as fast as they pay their card balances. It seems that, with the profiteering-prohibitive credit card bill looming up for activation, credit card companies are pulling out all stops to generate as much revenue as they can and to cover their exposure to the current financial crisis. So far, this has meant raising interest rates, even for credit cardholders with clean credit histories, and cutting available credit. Now, a new kind of threat to cardholders has cropped up, targeting primarily subprime borrowers.
Advertisements are running on TV nowadays offering a special kind of credit card seemingly targeted to subprime borrowers specifically. Subprime borrowers are considered as high risk by credit card companies and are often exempt from getting mainstream credit cards because of their lack of capability to pay off their balances. With this new advertised credit card, it seems that subprime borrowers can finally get much needed credit. However, it seems that these cards take more than they actually give.
The main feature of these credit cards are its unusually low credit limits, usually around $700. It seems like the perfect card for a subprime borrower who wants to have credit but needs to keep it in control. However, once the borrower gets the credit, they are immediately billed for several fees which are of considerable values. These fees often take up 80% of the available credit of the consumer resulting in a drastically lowered credit amount available for the consumer.
The fees charged on these deceptive credit cards usually includes program fees, account setup fees, monthly participation fees, annual fees, add-ons such, and memberships which are included even though the consumer did not enroll for it and does not want it. These credit cards also issue high penalty fees when the cardholders exceed their credit limits. It is no surprise that these cards have been dubbed as “fee harvester” credit cards.
Credit card companies have been offering these credit cards for several years now and their collections have been in the hundreds of millions which means that many subprime borrowers, people who are already in deep financial problems, are being profited from through morally indefensible means. However, experts say that credit card companies do have the legal right to do what they are doing and are actually putting the blame on lax regulations and pre-emptive federal statutes that block state usury laws which could've prevented these predatory and abusive practices.
Recently, a national group for consumer advocacy is putting pressure on Congress for the passage of legislation which will stop this kind of credit practices.