Credit cards – Text
Check unknown vocabulary before you read the text:
Catch – a tricky condition
Straight face – a face with no sign of emotion
Assign – to give out
Alternate – in place of another
Usury – the practice of loaning money at an exorbitant rate of interest
Guise – false appearance
Levy – to collect (fees or taxes)
Comply with – to act in accordance with some rules
Harvest – to receive benefits
Hefty – big and strong
Eventually – in the end
Gotcha – “got you“, trapped
Grace period – a period in which a debt may be paid without accruing further interest or penalty
The worst credit cards
When John Larson looked at the credit card application his college-aged son received in the mail, his blood started to boil. The card promised an attractive 9.9 percent interest rate, but there was a catch. Buried in the fine print was a list of fees that seemed almost comical.
- Account set-up fee: $29.00
- Program fee: $95.00
- Annual fee: $48.00
- Monthly servicing fee: $84.00 annually
- Additional card fee: $20.00 annually
And then, at the bottom, was a sentence that it's hard to imagine someone could write with a straight face: "If you are assigned the minimum credit limit of $250.00 your initial available credit will be $71.00 ($51.00 if you select the additional card option)."
Most consumers take credit cards for granted as a necessary tool for living in 21st century America. Cards are incredibly convenient, and in some cases, a necessity. It's difficult to rent a car, book a hotel room, buy anything online or even rent a movie without a credit card. With billions of pre-approved credit card applications sent out each year, it's easy for many Americans to get plastic – in fact, perhaps too easy. But another segment of the population -- those who've got low credit, or no credit -- find themselves in an alternate universe, where credit card plastic can literally cost its weight in gold. The card Larson was studying, issued by South Dakota-based First Premier bank, essentially has a $250 sign-up fee disguised as a series of smaller fees.
"I wonder how many college kids have fallen for this?" said Larson, who lives just outside Dallas. "Isn't this usury under the guise of finance fees?"
It's not usury. Credit card firms get wide latitude on fees they charge, thanks to a Supreme Court decision in 1996 that affirmed banks are only subject to their home state's laws, no matter where their consumers live. When levying fees, First Premier need only comply with South Dakota's relaxed consumer protection law.
First Premier is hardly the only bank charging high fees. In 2007, the National Consumer Law Center reported on what it called “fee-harvesting“ cards, aimed at the low-end of the credit card market. With some of these cards, after fees are counted against the credit limit, consumers have virtually no credit left to spend.
Consumers who have trouble getting credit cards are faced with two bad choices. They can either opt for what's called a "secured" card, which requires a hefty up-front deposit, or they can sign up for a card with hefty up-front fees. With a secured card, consumers send a bank $200 to $500, then get back a credit card with an identical credit limit. The bank holds the deposit in case the consumer defaults on the card. With secured cards, the consumer is essentially borrowing his or her own money and paying interest for the right to carry plastic. After a user demonstrates a good payment history, some banks extend the credit limit and eventually offer the consumer a chance at a traditional unsecured card.
Those with bad credit might have trouble coming up with deposit money for a secured card, however. Fee-harvester cards fill this gap, because they require no up-front payment before the card arrives. Some also don't require immediate payment of the fees; the $200 or so in extra charges can be financed by the consumers. That can lead to even more credit trouble down the line.
Both fee-harvester cards and secured cards have other gotchas, too. The Applied Bank Secured Visa card, for example, has no grace period. With most credit cards, consumers who pay their balance in full each month pay no interest on new purchases during a 25- or 30-day grace period. But with the Applied Bank card, the consumer is charged interest from the moment a purchase is made -- similar to taking a cash advance – even though the bank is already holding the consumer's money as a deposit.