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High Fee Credit Cards On The Rise In U.S.

Increasing number of subprime borrowers are obtaining credit cards with high interest rates and fees to have some type of credit to fall back on. These high fee credit cards generally offer very low credit limits and have high fees tacked on at the beginning, lowering the credit limit even further and generating interest for the company immediately. What these borrowers do not realize is that these high fee credit cards can cause more financial distress than not having them. A number of these borrowers get trapped in vicious cycle of debt that costs them much more than the cost of the initial incident that caused them to use the card.

Many of these high fee credit cards offers are sent to individuals unsolicited after the company reviews their basic credit history for pre-approval. The credit card solicitations are sent to people with blemished credit or a sparse borrowing history. Because there are few financing alternatives available to these individuals, all of them costly, the high fee credit card seems like a great idea. In order to obtain the high fee credit card, all the person has to do is fill out the mailed application form and return it to the credit card company. They can have the new, high-fee credit card in as little as ten days after the processing of the application.

The Consumer Financial Protection Bureau is beginning to take notice of the inherent unfairness of these practices that target people that are economically vulnerable. One issuer of these high fee credit cards, Continental Finance was recently required to pay a civil penalty of $250,000 and to refund $2.7 million to about 98,000 customers who had illegal fees levied against their newly issued credit cards.

An investigation found that Continental violated the 2009 Credit Card Accountability Responsibility and Disclosure Act, known as the CARD Act, by charging cardholders fees higher than 25 percent of the card’s credit limit during the first year an account is opened. Continental’s cards typically offered a $300 credit limit and charged a $75 upfront fee, which was acceptable under the CARD Act, but then charged further fees throughout the year that exceeded the fee cap, including a $4.95 monthly charge for paper billing statements.

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