U.S. PIRG Consumer Blog: New report out on predatory credit cards: "an eating machine."

The National Consumer Law Center has a new report Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers. The report provides an excellent overview of the

entire credit card industry, the history of its rapid growth under deregulation and preemption and how its staggering profits have been fueled by abusive practices affecting all consumers. It then focuses on the fee-harvester cards, which "represent an extreme version of the abuses by the card industry." It describes how the companies use sophisticated algorithms and access to credit report data to target vulnerable consumers, not for true credit solicitations, but for fee-harvesting. I could use the metaphor of a parasitic alien, jumping on the backs of consumers and sucking out their money, fee by fee, but the report does better.

The report points out that "fee-harvester cards have very little purchasing power" for the consumers who "use" the cards: "much of the unpaid balances represent fees rather than payments for purchases to third-party merchants." The report describes in detail how credit card banks, large and small, obscure (CorTrust) and well-known (Capital One and HSBC) have developed the fee-harvesting business model to target sub-prime consumers with low credit scores. The report provides a detailed explanation of the techniques used by fee-harvester cards to deplete millions of dollars annually from consumer wallets -- from down-selling and abusive debt collection to the slice-and-dice, used by the massive "What's In Your Wallet?" lender Capital One:

Slice and dice: Rather than increasing the credit available on an existing card with a low limit, a bank will sometimes issue an additional card that also has a low limit. That increases the odds that a cardholder will incur penalty fees or rates by exceeding the limits or missing payment deadlines on one of multiple cards. A 2006 report in Business Week magazine identified five consumers who ended up mired in debt after they were issued multiple credit cards by Capital One Bank. A Capital One spokeswoman told the magazine that the "vast majority" of Capital One cardholders had only one account, but that "a very small percentage" had three or more cards.

Another one of them is reverse redlining -- where low-income communities are targeted for credit offers, bad ones:

Reverse redlining. Lenders have historically denied residents of minority communities equal access to credit, a form of discrimination known as redlining. Some issuers, seeking to exploit that history, have launched "affinity" campaigns that market high cost products, including fee harvester cards, to minority communities. For example, a marketing company called Urban Television Network distributed the Freedom Card, a fee-harvester card that often had a credit limit of only $300. Promotional efforts for the Freedom Card included a contract with musician Queen Latifah.

It's an important report. It should be read by all policymakers. For more on credit cards, see our campus marketing campaign site truthaboutcredit.org.