Many credit cards charge high interest rates. But consumer advocates say that now many companies are taking it to the extreme by handing out cards that prey on unsuspecting customers with bad credit. Borrowers pay astronomical fees and consumer advocates say it is abuse.
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Credit cards can charge high interest rates. Today, consumer advocates say many companies are taking it to the extreme, handing out cards that prey on unsuspecting customers with bad credit. They call them fee collection cards, as NPR’s Chris Arnold explains.
CHRIS ARNOLD: Mrs. MARY ANN STRAUSS (ph) That’s what I told them. I said, why are you charging me so much money?
ARNOLD: Mary Ann Strauss of Sunbury, Pa., Is 72 years old. She is a pensioner living on social security. She got one of those Capital One credit cards. Strauss’s attorney says she made four purchases totaling $ 430, but couldn’t keep up with the charges. So for several years Strauss paid Capital One eleven hundred and ninety dollars, almost three times what she had bought. And she says the company’s collectors wanted almost $ 1,500 more.
STRAUSS: It was terrible. They stalk me all the time. And they called me at midnight and so forth. And I had a stomach ache all the time, not knowing whether to answer the phone or what.
ARNOLD: The National Consumer Law Center has a new report that says these types of credit cards are designed to trick customers with weak credit.
CHI CHI WU: The card is already loaded with a lot of charge and very little credit.
ARNOLD: Chi Chi Wu is a lawyer at the Legal Center. She says many companies are marketing these cards now. The ad could state that the card will offer a credit limit of up to $ 2,000, but Wu says most customers are actually given a much lower credit limit, say two to three hundred dollars.
CHI WU: The real problem is that out of that two or three hundred dollar credit limit, hundreds of dollars in fees are deducted – 48 dollars for attendance, annual fees, membership fees.
ARNOLD: Wu says the client has virtually no credit – only $ 50 or $ 75. So if they even make a few small purchases, they go over the limit and get hit with more fees.
CHI WU: We call these fee collectors because what these cards are basically designed to do is collect fees from consumers instead of offering credit. It’s just a big fee collection machine.
ARNOLD: In its report, the Legal Center refers to these cards as a perfect predatory machine, citing the movie “Jaws”. But the companies that issue such cards defend them. Tatiana Stead is a spokesperson for Capitol One.
TATIANA STEAD: We do everything we can to make sure our customers are offered the amount of credit on terms they can handle. In some cases, this means a modest line of credit. In fact, for people who have poor credit or no credit, this is a great opportunity to help them build their credit history.
ARNOLD: The report names other companies, including one called CompuCredit, which it says specializes in these high-fee cards. CompuCredit said in a statement that the report was misleading and that the company offered financial services to underserved customers. But even some people in the industry dispute the report’s high cost cards.
NESSA FEDDIS: The charges that have been described are, you know, outrageous. People shouldn’t have to pay for this.
ARNOLD: Chris Arnold, NPR News.
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