Federal Reserve goes after “fee harvesters”
The government’s new credit card legislation was designed to help Americans with their debt management.
However, unintended consequences of the CARD Act continue to arise, leading the Federal reserve to attack a particular type of credit card, dubbed “fee harvesters.”
These cards typically offer low credit limits and lots of fees, according to the report by Time. The cards can charge as much as 79 percent APR and typically have spending limits of only a few hundred dollars.
“We think it’s a failed business model,” Lauren Saunders, managing attorney for the consumer law center told The Washington Post. “It’s appropriately getting squeezed.”
The Federal Reserve believes these cards are targeted at consumers with poor credit management skills, who will quickly use the available credit. Opponents of the measure argue it allows credit companies to lend money to high-risk consumers, the Post reports.
Under the current law, credit cards are limited to charging annual fees that are less than 25 percent of the credit limit. But the Federal Reserve is proposing to close limits on additional fees, such as monthly and sign-up fees.