DEFINITION of 'Fee Harvesting Card'

Credit cards targeted at consumers with poor credit scores that carry numerous fees, making the cost of credit extraordinarily expensive.  Fee harvesting cards charge fees for setup and activation, in addition to a monthly or annual fee, that serve to dramatically reduce the amount of credit extended to the consumer. Most fee harvesting cards extend a very limited credit line to begin with, so the total fees in relation to the credit available become exorbitant. The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 addressed the issue of fee harvesting cards by requiring that an issuer not require consumers to pay fees (excluding penalty fees) exceeding 25% of the total initial credit line during the first year in which an account is opened.

BREAKING DOWN 'Fee Harvesting Card'

In April 2011, the CARD Act revised the regulation regarding fee harvesting cards, to include the 25% fee limitation to fees charged before account opening. This was in response to the practice adopted by some card issuers, who were requiring consumers to pay hefty application and processing fees even before opening a credit card account. When combined with other fees subsequently charged to the account, the total fees exceeded 25% of the initial credit line.

Fee harvesting cards gained notoriety during the boom years for subprime credit leading up to 2008, after the Federal Trade Commission (FTC) brought a high-profile enforcement action against an issuer of these cards. In a federal court complaint filed in June 2008, the FTC alleged that the issuer engaged in deceptive conduct when marketing its credit cards. Two of the issuer’s most usurious types of cards were:

  • Fee-based credit card with $300 limit – targeted at consumers with subprime credit ratings, these cards had a purported $300 credit limit. However the issuer immediately charged consumers fees of as much as $185, leaving only $115 in available credit.
  • Credit cards with up to $3,250 limit – the issuer marketed this card to consumers with slightly higher credit scores but failed to disclose that half of the available credit would be withheld for the first 90 days.
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