Credit Card Companies Abuse the Unwitting
RENEE MONTAGNE, host:
Credit cards can charge high interest rates. Now, consumer advocates say many companies are taking that to an extreme, handing out cards that prey on unsophisticated customers with bad credit. They call them fee-harvesting cards, as NPR's Chris Arnold explains.
CHRIS ARNOLD: People who get one of these cards can quickly end up paying a lot more to the credit card company than they ever actually spent using it; that's because of all the fees.
Ms. MARY ANN STRAUSS(ph) That's what I told him. I said what are you charging me that much money for?
ARNOLD: Mary Ann Strauss of Sunbury, Pennsylvania is 72 years old. She's a retiree living off of Social Security. She got one of these credit cards from Capital One. Strauss's lawyer says she made four purchases totaling $430, but she couldn't keep up with the fees. So over several years Strauss paid Capital One eleven hundred and ninety dollars, nearly three times what she'd purchased. And she says the company's debt collectors wanted almost fifteen hundred dollars more.
Ms. STRAUSS: It was terrible. They've been hounding me all the time. And they would call me at midnight and everything. And I was getting sick in my stomach all the time, not knowing if I should answer the phone or what.
ARNOLD: At one point, Strauss says she let her electric bill go so she could keep trying to pay the credit card.
The National Consumer Law Center has a new report that says these types of credit cards are designed to ensnare customers with shaky credit.
Ms. CHI CHI WU (National Consumer Law Center): The card comes already loaded with lots of fees and very little credit.
ARNOLD: Chi Chi Wu is an attorney with the law center. She says a slew of companies out there market these cards now. The ad might say the card will offer up to a $2,000 credit limit, but Wu says most customers are actually given a much lower credit limit; let's say two to three hundred dollars.
Ms. WU: The real whammy is that from that two or three hundred dollar credit limit, hundreds of dollars in fees are deducted - $48 for participation, annual fees, membership fees.
ARNOLD: Wu says leaving the customer with virtually no credit at all - just 50 or 75 bucks. So if they even make a few small purchases, they go over the limit and get hit with more fees.
Ms. WU: We call these fee harvesters because essentially what these cards are designed to do is rake in fees from consumers instead of offering credit. They're just a big collection machine for fees.
ARNOLD: In its report, the law center refers to these cards as a perfect predatory machine, quoting the movie "Jaws." But the companies that issue such cards defend them. Tatiana Stead is a spokeswoman for Capitol One.
Ms. TATIANA STEAD (Capital One): We try really hard to make sure our customers are offered the amount of credit in terms that they can handle. In some cases this means a modest sized credit line. In fact, for people who have weak credit or no credit, this is an outstanding opportunity to help them build their credit history.
ARNOLD: Stead says customers who pay on time are rewarded with higher credit limits and better terms. She also says customers can avoid paying late or charging too much on a card.
The report names other companies, including one called CompuCredit, that it says specializes in these high-fee cards. CompuCredit said in a statement that the report was misleading and that the company offers financial services to underserved customers. But even some people in the industry take issue with the high-cost cards in the report.
Ms. NESSA FEDDIS (American Bankers Association): The fees that have been described are, you know, are outrageous. People shouldn't have to pay that.
ARNOLD: Nessa Feddis is senior federal counsel with the American Bankers Association. She stopped short of calling for stiffer regulations, fearing that that might cut off people's access to credit. The National Consumer Law Center, though, is calling for tougher federal controls.
Chris Arnold, NPR News.