The National Consumer Law Center, a consumer advocacy group, called on Congress to pass legislation to stop the growth of an abusive type of credit card, the so-called ‘fee-harvester’ that targets consumers with poor credit. These offers are heavily marketed to subprime borrowers who don’t qualify for traditional credit cards, come with a small credit limit and incur a number of high fees that can use up over 75% of the credit line leaving consumers holding a large debt with very little available credit.  Willard Ogburn, the NCLC director, said the practice is “technically legal, but morally indefensible.”

An example given was a card offered by First Premier Bank, a South Dakota based bank, featuring a $250 credit limit. New cardholders are automatically hit with a $95 program fee, a $29 set-up free, a $48 annual fee and a $6 monthly participation fee leaving a meager $72 in available credit. That’s $178 in immediate debt! “No one in their right mind would agree to pay $178 so they can borrow $72,” said Joe Ridout, a manager for Consumer Action, a nonprofit education organization. By spending roughly $160 million, CompuCredit of Atlanta, collected $400 million in fees in 2006 and was owed $973 million in similar fees by mid 2007.

The growth of these types of cards has been blamed on lax financial industry regulation and on federal statutes that pre-empt state usury laws designed to prevent abusive and predatory lending practices. Smaller banks typically specialize in ‘fee-harvesting’, but some larger issuers follow the same model and offer similar offers. The appeal to Congress is to to abolish these pre-emptive statutes and to enact laws that limit fees, interest rates and terms.

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