California Credit Law Blog

Today, the 9th Circuit Court of Appeal issued a ruling in a case in which the plaintiffs are accusing Aspire VISA, a subprime credit card, its marketing is a violation of the Credit Repair Organization Act. That Act prohibits companies from seeking advance payments for fixing the consumer's credit.

Aspire VISA offered a $300 credit limit VISA card as a way for consumers to rebuild their credit. The catch was that Aspire VISA charged consumers a $29 finance charge, a monthly $6.50 maintenance fee, a $150 annual fee all charged against the $300! The consumer received a mere $63 in credit while being charged $257. The plaintiffs in the case alleged this was an advance payment in violation of the credit repair act.

The 9th Circuit Court of Appeals held that the Act did not allow the credit card company to force the consumers into arbitration.

Posted by Mark F. Anderson | Permalink | Email This Post

Posted In: Credit Card Scams

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Study after study show how expensive it is in the United States to be poor. A new report by The National Consumer Law Center about so-called fee harvester cards brilliantly illustrates that principle. These fee-harvester cards look like credit cards, but they have little or nothing to do with issuing credit. They are "subprime" cards designed to maximize profit by targeting consumers with poor credit. They look too good to be true, and are: these cards come with extremely high fees that eat up most of a low credit limit, meaning the cards are virtually useless.

A typical card will advertise a credit limit of $250, but that is reduced by a $50 membership fee, $119 acceptance fee and $6 monthly participation fee, leaving the consumer with only $75 of actual credit. And if the consumer goes over that, they are charged a $29 overlimit fee! The report tells the story of a sailor on leave who charged $85 on one of these cards with a purported $250 credit limit. Yet, because her net available credit was only $72 after the company charge its upfront fees, she incurred huge additional charges and is now paying off a balance of more than $300 for her $85 shopping spree.

Most "mainstream" credit card companies make their profits by generating interest income on account balances. These cards don't. They make their money by charging front-end fees to obtain the cards in the first place, because many cardholders are unable to make their payment on time or at all. Then, when the card issuer writes off the balance, it consists mostly of unpaid fees to itself! For example, in 2006, CompuCredit charged off more than $700 million, yet took in enough fees and interest to make $107 million in profit.

Continue reading "Fee-Harvester Cards: Credit Cards That Are Really Just Fee-Generating Scams" »

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Credit Card Scams

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The Sunday May 27, 2007, edition of the Washington Post contains an article entitled "A Highly Charged Relationship" about Americans' love hate relationship with credit cards. What what we all love is the convenience, but we hate are the practices hidden in the fine print such as unfairly high interest rates and penalty fees; confusing policies that constantly change, almost always in the lender's favor; and near-insurmountable hurdles to getting help when a consumer falls into trouble or when a company makes a billing mistake.

The article states that most complaints involve "over limit" fees and penalties; interest charges on the whole debt even when part of it has been paid; billing errors (in the case discussed, Capitol One harassed a dad mourning the death of a son who had left a debt of $217 - - Capitol One erroneously insisted that the debt was more than 6 times greater); refusal to work with credit counselors who are trying to help the card holder; "workout plans" that don't reduce the consumer's debt; and "due dates" on days when it is literally or effectively impossible to make payment (here, the consumer paid in person at the bank on Saturday, in advance of the Sunday due date - - a date on which it was impossible to pay - - but since Saturday payments are not credited until the next business day, the consumer got hit with a late charge).

For the complete article, go the Washington Post website and search for the article by Kathleen Day.

Posted by Mark F. Anderson | Permalink | Email This Post

Posted In: Credit Card Scams , Credit Cards

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Credit cards scammers have a new tool to defraud consumers. Most people have heard of "phishing," when fraudsters ask consumers to reveal personal credit information in response to a fraudulent e-mail message. This new scam is called "vishing"--phishing by phone.

Fraudsters prompt this new scam either by e-mail message or by a phone call, which can be recorded or live. Typically consumers will be asked to type in an account number or other information over the phone. The thief then uses this information to steal credit or for identity theft.

Thieves often use huge lists of consumers' names to make cold calls, saying they are calling on behalf of well-known banks and familiar companies. They hope the targeted consumer will be a customer and will return the call thinking the creditor is genuine.

Banks say if there is a legitimate problem with a customer account, a real person will call from the bank's fraud control department. Banks would never send automated messages asking consumers to type in sensitive information over the phone.

If you get a call that sounds suspicious, hang up. Use the phone number printed on the back of your credit card to call back and ask the bank about the call you received. If you have been a "vishing" victim, report your experience to the FTC's identity theft website.

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Credit Card Scams

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Call centers in India have been defrauding British consumers by selling their personal financial data for as little as eight British pounds, less that ten U.S. dollars. This video illustrates the shockingly wide-ranging practice of call centers' theft of consumers' valuable personal information, which is then quickly offered for sale. Unfortunately, this data theft is spread among a number of banks, not just one or two. One of the British journalists reporting the story questioned whether this wide-spread practice was exacerbated by the banks' decision to move their call centers out of Britain to save money.

The same type of theft could easily happen to American consumers. Protect yourself by always reviewing your credit card statements to make sure your haven't been charged for anything that's not yours. Also, check your credit report at least one a year.

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Credit Card Scams

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Maxed Out, an illuminating new documentary film about how the credit industry takes advantage of vulnerable consumers, arrives in theaters tomorrow. I had a chance to preview this film by director James Scurlock in November and was blown away. I highly recommend it to anyone who uses credit or credit cards at all.

In 1979, when I graduated from law school--with a great job--it took three tries before I could get a VISA card. The film demonstrates just how much has changed since then. Now creditors are luring college students into applying for credit cards as soon as they leave home. Many of these students find themselves deep into debt in just a few years. The film tragically documents two college students' suicides, as told by the students' grieving mothers, after they found themselves desperately in over their heads.

The film also explains why big banks don't discourage people from using credit that they can't afford--marginal borrowers are often the core of their profits.

Even worse, since many of our elected representatives have close ties to the banking industry, they actually encourage financial institution's predatory behavior.

Unless you keep all your money under a mattress and never use credit, I encourage you to see this film. You'll never look at credit the same way again.

Posted by Carol McLean Brewer | Permalink | Email This Post

Posted In: Consumer Credit 101 , Credit Card Scams , Credit Cards

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