Here’s another indication of how, despite months of rolling out new credit card reform regulations, the current card landscape is a lot like the old one, just with a tweaked set of tricks and fees that obey the letter of the law while still milking consumers for revenues. One of the new laws puts a cap on up-front fees of 25% of the card’s credit limit, meaning a card with a $300 limit could charge an annual fee of no more than $75. So why is it that some cards with $300 credit limits are able to charge customers $170 before the account is even used?
First Premier, a bank that offers cards to customers with bad credit and that earlier this year briefly offered a card with a mind-boggling 79% APR, is one of the card issuers that’s deftly circumventing the spirit of the new credit card laws, according to the St. Louis Post-Dispatch:
As of last week, First Premier was offering a card with an annual fee of $75. That’s 25 percent of the $300 credit limit. But it also has a $95 “processing fee” that must be paid before the customer gets the card.
It’s perfectly legal, says First Premier. “The credit card act does not preclude fees charged prior to the account being opened,” says Darrin Graham, the bank’s vice president for marketing. So, the $95 fee doesn’t count.
I suppose First Premier should get some credit (excuse the pun) for offering these cards, sometimes referred to as “fee harvesters,” at all to people with horrendous credit. Many card issuers have simply closed unprofitable accounts and made it harder for certain consumers to access credit—along with jacked-up interest rates, this is one of the unintended consequences of credit card reform.
But if $170 is the price you have to pay for a card that essentially comes with a limit of $130 for the first month ($300 minus $170 in fees), you have to ask yourself how badly you need a credit card. You should also ask yourself how in the world did you screw up your credit score so badly to find yourself in a situation in which such a card seems like the only option.
Speaking of which, it’s not the only option. The Post-Dispatch story highlights one alternative, the “secured” credit card, which is still less than ideal, but better than other fee-laden cards. Here’s how it works:
Consumers place money, often $300 to $500, on deposit with the bank. The bank then gives them a credit card with a limit of the deposit amount, or somewhat more. Many such cards carry annual or monthly fees, although some don’t, and some carry application fees.
To save up for such a card and thereby avoid the onslaught of a “fee harvester,” you might need time away from plastic to harvest some money. And while you get by without credit cards for a few months, you’ll have the opportunity to live the cash-only existence—and to ask yourself just how badly you need a credit card at all.