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.

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