Why would consumers who have debt
trouble opt for a fee-laden subprime
credit card rather than a less expensive secured credit card?
"Marketing. Marketing. Marketing." That's
how Travis Plunkett, the legislative director of the Consumer
Federation of America, responded when asked the question. According
to Plunkett, subprime credit card issuers are wizards when it comes
to identifying customers who are so desperate for a credit card
that they'll apply for a card even if it's against their best interests.
"We hear story after story of people who have taken
out bankruptcy," he says, "and literally, the day they
get home from the bankruptcy court, they find subprime credit card
offers in their mailboxes."
If that sounds crazy, wait till you hear what they're
For example, Continental Finance's MasterCard promises
an initial credit limit of $300. "Great," you think. "That
should help in a pinch." Don't count on it. In the same paragraph
of the terms and conditions that states the credit limit, it also
says that the prospective cardholder promises to pay an "Annual
Fee of $49, Account Processing Fee of $99, Program Participation
Fee of $89 and monthly Account Maintenance Fee of $10."
For the mathematically challenged, that maintenance
fee works out to $120 a year. Then in bold print, the bank does
the math for you: "Your available credit after these
charges will be $53 at Card issuance."
That's right: Before you've even signed your new credit
card, you're in debt $247. And if you're so desperate for credit
that you have the card rushed to you, Continental Finance will add
a $25 "Courier Delivery Fee" to your bill.
Of course, if you do that, you'd better start making payments fast, because if you're late, you're charged another $30. And that will put you over-limit, which means another $30. There are other fees as well, but the kicker is this: As a new Continental Finance cardholder, you will have committed to a minimum of $169 in annual, ongoing fees just so you can have a $300 credit limit. Now, that's crazy.
What's more, if a cardholder wants to increase the credit limit, each $100 increase will cost an additional $25.
Fees charged for the use of a subprime credit card eat
up much of the credit limit. The fees in this chart are typical
on a card with a $300 credit limit. Consumers are better off choosing
a secured card.
||What's left after fees?
|Account processing fee
|Program participation fee
|Account maintenance fee