What is a 'Fee-Harvesting Card'

A fee-harvesting card is a credit card that charges excessive fees, sometimes including initial charges for card activation, and either an annual or, in some cases, a monthly cost whether or not the customer uses the card.

These cards often are sold to individuals with weak credit scores.

BREAKING DOWN 'Fee-Harvesting Card'

Fee-harvesting cards aren’t marketed by this name, but consumers know one when they see one. Often, banks advertise these as semi-secured cards, which first require consumers to make a deposit before banks offer credit. Banks typically sell these cards to people with little or no credit history, or those who find it difficult to attain credit because of  loan defaults or a previous bankruptcy.

While these cards can help consumers establish a credit history, some, in particular, collect exorbitant fees. Charging a comparatively higher rate for customers with poor credit is not out of the question, as this compensates the bank for dealing with riskier borrowers. But layers of fees take advantage of consumers in a difficult situation.

Of note, banks tend to extend credit to people with questionable credit to build a portfolio of risk, so they’re not afraid to take on some higher-risk customers, provided they are compensated for it. Also of note, usury laws limit the amount of interest banks can charge for credit cards. So some cards charge the maximum interest rate allowed, as well as a host of fees.

In the years following the 2007-2009 financial crisis, the U.S. government took extra steps to limit card fees.

Regulating Fee-harvesting Cards

Fee-harvesting cards cropped up frequently in the years following the 2007-2009 financial crisis. In response, the  Federal Trade Commission (FTC) sued several issues of these cards, alleging banks deceived consumers. In particular, the FTC took issue with fee-based credit cards with $300 limits that charged annual fees of as much as $185. In addition, the FTC took aim at cards offering higher limits, but without disclosing that half of the credit limit couldn’t be accessed within the first 90 days.

Congress also took steps to more heavily regulate fee-harvesting cards at roughly the same time. It instituted the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. This act stipulated card issuers cannot charge fees that exceed 25% of the total initial line of credit for the first year of a new account. This excludes any late fees or penalties.

Then in April 2011, an amendment to the CARD Act limited fees charged before customer account openings, in response to a practice by some lenders requiring a range of hefty fees even before they opened a credit card account.

  1. Credit Card Funding

    Credit card funding is the use of a credit card account to provide ...
  2. Business Credit Card

    A business credit card is a credit card intended for use by a ...
  3. Universal Default

    Universal default allows a credit card company to raise a card’s ...
  4. Zero Balance Card

    A zero balance card is credit card on which a consumer does not ...
  5. Credit Card Authorization Key

    A credit card authorization key refers to an specialized code ...
  6. Inactivity Fee

    An inactivity fee is a sum charged to investors who haven't engaged ...
Related Articles
  1. Small Business

    How to Use Small Business Credit Cards

    A small business credit card can be a convenient way to increase your company's purchasing power, enabling access to a revolving line of credit.
  2. Personal Finance

    Credit Cards For People With Bad Credit

    Yes, you can get a credit card and start repairing your credit history. But brace yourself for low credit limits, sky-high interest and staggering fees.
  3. Personal Finance

    7 Factors For Comparing Credit Cards

    It's good to find a credit card that fits your lifestyle, but read the fine print to make sure you're not overpaying for the benefits.
  4. Personal Finance

    How To Get Your First Credit Card

    Here's a rundown of how you can go about getting your first credit card.
  5. Personal Finance

    Credit Card Tutorial

    Credit cards can be a useful tool if you know what you are getting into. Learn the risks, rules, history of credit cards.
  6. Personal Finance

    10 Considerations For Using Your Credit Card Abroad

    Credit cards can be the best item you pack when traveling, just make sure that you are taking the right card that suits your needs.
  7. Personal Finance

    How Many Credit Cards Should You Carry?

    If you have ever wondered whether you should carry one, two or more cards, read on and we'll tell you.
  8. Personal Finance

    5 Credit Card Myths Hurting Your Financial Future

    It's important to understand the facts versus myths about credit cards and use them in a way that won't hurt your financial future.
  9. Personal Finance

    10 Reasons To Use Your Credit Card

    There's a surprising credit card strategy you should employ as a consumer ... use your card for everything (or almost).
Trading Center