Fee Harvesting Credit Cards 5 Tips You Should Know About

Is a fee harvesting credit card ever a good idea for people with bad credit?

It depends, say consumer credit counselors and advocates, who generally advise against getting such credit cards. Fee harvesting or subprime credit cards are marketed to people with bad credit who are trying to improve their credit scores by showing good repayment habits. The credit limits are typically low, ranging from perhaps $300 to $500 and interest rates are higher to reflect the greater risk of these cardholders.
The trick is that the cards often have numerous upfront fees that significantly reduce the amount of available credit -- and thus limits the consumer's purchasing power on the card. Solicitation letters and marketing materials for fee harvesting credit cards often do not clearly disclose all of the potential fees. Consumers who get the cards are often blindsided by the fees, advocates say.

"It looks like it might be a good deal for them and ends up with all these hidden fees. It just puts them right over the edge," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA), a nationwide group that represents 36 nonprofit consumer credit counseling agencies that operate 178 counseling offices in 38 states.

Adds Jones: "A consumer should be very careful to look at all of the fine print and card agreements and understand what they're getting into."

Federal regulators have targeted the cards for greater disclosure requirements, but some consumer advocates say fee harvesting cards should be banned outright as deceptive and unfair. Banks that issue the cards say they are providing a service for the unbanked and for those who could not qualify for credit elsewhere.

Consumers should set a goal of finding "a card with a single-digit interest rate and no annual fee," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. "Anything higher than that could indicate the card is a subprime product."

The National Consumer Law Center, a Boston-based consumer rights agency, and credit counselors offer the following advice for anyone considering fee harvesting cards:

1. Read the fine print. Be aware of the upfront fees. Asks Cunningham: "What is the interest rate and is it fixed or variable? What is the grace period for payments? What is the late fee if a payment arrives late or is missed? Will the interest rate increase in the event either of those things happen? Can the card be used anywhere (or just through a catalog they offer)?"

2. Shop around. There may be better offers from other issuers.

3. Find alternatives. Prepaid or secured credit cards may help you rebuild your credit without a bunch of fees. Secured cards require that you put your own money into an account. You then use the funds on a credit card and repay the amounts due each month. Debit cards may be another alternative to consider.

4. Don't believe the hype. Many of the marketing materials for fee harvesting credit cards come in the mail or through Internet, television or telemarketer ads and pitches. People desperate for a credit card may fall for slick advertising that may fail to reveal information needed to assess whether the offers are good deals for you. "If a credit card offer seems too good to be true, it may turn out to be a very bad deal," warns a National Consumer Law Center study.

5. Ask yourself why you need the card. If you need to repair a bad credit history, consider other options first.

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Beware Of Credit Card Skimming

Credit card skimming is an international problem accounting for losses of over one-billion dollars a year. This type of credit card scam is common in Europe, Asia and Latin America and is starting to show up more in the United States.

This scam is easy to run - it can happen when you give your credit card to a store employee to make a purchase. That employee may not only swipe your card for payment, but also swipe the card with a small machine they hold in their hand known as a skimmer. This small device will store the information from your card into its system. The skimmer is equipped to hold information on hundreds of credit cards and from this information, the crooks are able to produce counterfeit cards.

There are skimming rings working all over the world and once your information is put into the skimmer, it is then downloaded into a computer, ready to be emailed to anyone worldwide.

A decade ago, this fraud was not as easy to accomplish as it is today, due to the fact skimmers were very large and had to be hidden under counters. However, with the advance of technology in the past ten years, they have been able to streamline the skimmer, making it small enough to be hand-held and out of sight of the unwary customer making a purchase. These skimmers are easy to buy; in fact, they can be purchased over the internet at around $300. The machine needed to make counterfeit credit cards is a much larger investment - costing $5,000 to $10,000.

Another form of this scam is done by actually pulling information directly from the credit card terminals. A skimmer bug is placed into the terminal and later retrieved with credit card information on it. Only the older terminals can be violated in this way and with the onset of new credit card terminals, this has alleviated much of this bugging.

As soon as the crooks have their needed information on you, they will start their shopping sprees using your credit card number. They purchase all types of merchandise and charge it to your credit card. Over half of credit card fraud is done over the internet with online purchases. With shopping on the internet becoming more and more popular, card fraud on the internet has also increased.

The crooks will also use the internet to verify the card information is valid. They will purchase many low-ticket items through various websites, checking to see if the card is active. Internet processing of card purchases is done by real-time processing and not handled by a person; thus, no chance of them being caught trying to use a stolen card number.

The cardholder is a victim of this crime and is responsible for up to $50 of the total amount charged on his card, while the real victim in all of this is the merchant whose employee did the skimming. The merchant is held 100% responsible and risks losing the merchandise, and is responsible for paying the fees of the investigation. Investigation fees paid by consumers and businesses in 2003 amounted to an estimated half-billion dollars in annual revenue for credit card companies. This money is used by the card companies to offset costs to investigate charge back claims by their customers.

The crook who perpetrates this card fraud, for the most part, goes unpunished. There is a limit of $2,000 before a criminal investigation can be started; the crooks know this and will not exceed $2,000 on their purchases from any one business. Thus, they are pretty much free to continue to victimize consumers and businesses.

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Who Get's My Money After Gift Card Expiration?

Did you get a gift card for Christmas? Since it was given to you, you probably think the money should be spent by you. However, if you wait too long to spend that gift card, it could end up in the state's unclaimed-property account.

Why? Well, even though you might not think you've abandoned your gift card, if you don't use it after a certain amount of years it might be subject to laws that allow the money left on that card to revert, or escheat, to your state's piggy bank.

So, when does the gift card money become the state's money? That depends on your state's escheat laws.

There are basically three models of escheat laws.

1. No expiration or escheat model.

This is a very consumer-friendly model used in several states including California, Washington and Massachusetts. This model never gives up the money to the state. The gift card is good from now until eternity. In this model, there is a reserve fund specifically for redemptions set up by the retailer. By setting up this reserve fund, the retailer recognizes that the consumer can eventually redeem the gift card for merchandise. Retailers in these states are not required to have the money escheat to the state.

2. 60/40 model.

This is a more traditional model stating that gift certificates can come with expiration dates and when they do expire (usually between three and five years) retailers are responsible for having 60 percent of the value of the card escheat to the state. The retailers are allowed to keep the other 40 percent. The state acknowledges that retailers have costs that come with gift cards and allows them to keep a portion of the leftover money. Indiana and Iowa use this law.

3. No gift-card expiration dates, escheat laws apply.

This model is somewhat confusing since the states involved, such as Connecticut, have eliminated expiration dates on gift card and certificates. However, even though consumers will not find expiration dates on their gift cards, they are expected to use their gift cards within three years. Otherwise the state views the gift card as abandoned and the money escheats to the state. However, if a customer comes in after three years and obtains merchandise from the store using their unexpired gift card, the retailers can apply to get the money back from the state.

According to George Delta, counsel to the Incentive Marketing Association, a trade organization of businesses in the incentive industry, "States require businesses to give them some type of periodic report of the amount of unclaimed property they are holding. This allows the state to monitor this potential source of income."

Dan Horne, professor of marketing at Providence College, says consumers ultimately benefit from state escheat laws because the unused money that is not claimed goes into the state Treasury.

With 50 states, there is no easy, uniform answer to questions of escheat. If you are wondering about how your state handles gift cards, the Incentive Gift Card Council offers a link to check your state's escheat laws.

By Kristin Arnold
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