The new credit card regulations passed over the last 18 months not only caused their share of unintended consequences (soaring interest rates, for one), they also had their share of loopholes that left consumers vulnerable. Now, the Federal Reserve is trying to close one loophole being taken advantage of by so-called “fee harvesters,” a particular breed of cards with low credit limits ($300 annually), tons of mandatory fees ($100 annually and up), and a nickname that sounds like the title of a personal finance sci-fi horror film. They prey on the desperate. They feed on those foolish enough to allow them into their purses and wallets. They’re … the Fee Harvesters!
They attack when you sleep and slice you open, removing major organs and putting them up for sale on the black market in another galaxy. OK, not really, but I was on a roll there.
Anyway, the Washington Post reports on the Fed’s latest move to rein in abuses by credit card issuers. This current move is aimed at issuers such as First Premier, which is known for cards that have charged as much as 79% APR. Their cards are also known as fee harvesters because of their abundance of mandatory charges.
By law, credit cards are limited to charging an annual fee no greater than 25% of the credit limit. But, as of right now, there are no rules regarding if, or how much, a card charges for some other fees—like the $25 “sign-up fee” assessed by First Premier.
The Fed wants to close that loophole, and to cap all of the upfront fees at 25% of a card customer’s credit limit. The WP explains:
The initial credit limit on First Premier’s card is typically $300 and it carries a $75 annual fee – 25 percent of the available credit and technically in compliance with the law. Under the Fed’s proposal, however, card issuers would be required to include the sign-up fees in that calculation, putting First Premier’s fees at 33 percent of available credit.
Still, there are no caps on interest rates, meaning that it is possible for cards to charge a loanshark-like 79% (and up) in interest. Regardless of what the Fed does and doesn’t do to protect them, consumers must be their own watchdogs—and they must be smart enough to avoid credit cards with absurd fees and interest rates. There are other options out there, such as: cash.