Fee harvester credit cards are a type of credit card aimed at consumers with bad credit histories who have trouble getting their applications approved. The credit cards charge a high amount of upfront fees, often eating into a low credit limit and leaving only a small amount of available credit for the new credit cardholder to use.
Federal law limits the amount of upfront fees that credit card issuers can charge to 25% of the initial credit limit. Even so, 25% of $300 is $75, still a lot of fees to pay for a new credit card. Before the rule was implemented, credit card issuers could charge an unlimited amount of fees, leaving the cardholder with only a small amount of available credit after all the fees were assessed.
In a way, the rule was a win for consumers.
At least one credit card issuer, First Premier, has found a way to skirt the rule by assessing a fee before the credit card is even opened. Consumer groups urged the Consumer Financial Protection Bureau to consider these fees a violation of the section of the CARD Act that limited upfront credit card fees, but ultimately, the bureau decided that pre-account opening fees are legal, no matter the amount.
Fee harvester credit cards are heavily criticized for the expensive fees charged to consumers and by comparison these are unquestionably some of the worst credit cards on the market. However, these cards target a group of consumers who, as indicated by their credit histories, are likely to run up a credit card balance and then default on it, causing a loss for the bank. Consumers who would be drawn to a fee harvester credit card likely can’t qualify for better credit card offers.
Despite the high cost, a small number of consumers could stand to benefit from a fee harvester credit card.
Assuming the card reports to the major credit bureaus, using the card wisely can help the cardholder improve their credit and qualify for better credit card offers.
A fee harvester credit card should only be the last resort. Don’t apply for a fee harvester credit card until you’ve considered a secured credit card as well. The Capital One Secured MasterCard, for example, may approve you for a $200 credit limit with a minimum security deposit of $49 or $99 and a $29 annual fee. This deal is far better than First Premier’s offer of $95 processing fee and $75 annual fee (you’ll pay $120 total fees in the second year).
Don’t apply for these fee harvester (or any) credit cards without knowing what you’re getting into. That means reading the terms and conditions thoroughly. Make sure you understand the interest rate you’ll be charged on purchases, balance transfers, and cash advances. Pay attention to the fees, those charged before the account is opened as well as those charged in the first year and every year after. Federal law limits only the percentage of fees that can be charged in the first year. There’s no limit on the amount of fees card issuers can charge in year two and beyond. There’s also no limit on the fees that can be charged for additional services, like additional card fees or credit limit increase fees.
Don’t consider a long-term financial relationship with a fee harvester credit card. This isn’t the type of card you carry for more than a year; two years is pushing it. The goal is to build up several months of timely payment history that can help you qualify for a better credit card.
In addition to their high fees, fee harvester credit cards have a reputation for unfair marketing, poor customer service, and abusive collection practices. Which is all the more reason to use these types of credit cards for a very short time or avoid them all together if you can. Remember, that you can lodge a complaint against unfair credit card practices with the Consumer Financial Protection Bureau.