The pitch sounds alluring: "If you have been turned down for credit recently because of your credit score, Continental Finance is here to help you with the second chance you have been waiting for."
But the "second chance" provided by Continental Finance Classic MasterCard could cause cardholders' credit scores to dive further. Designed for borrowers with subprime credit, commonly defined as a credit score below 660, the card comes with fees galore. The initial credit limit is $300, but it is immediately reduced by a $50 annual fee and a $200 account-processing fee, leaving available credit of only $50 at the outset. In addition, there's a monthly account-maintenance fee of $15, a $5 fee for online payments, a $25 fee if the credit line is increased, which can happen after six months, a $15 replacement fee if the card is lost or stolen, and a $35 over-the-limit fee. The annual interest rate on balances: 19.92 percent.
Issued by First Bank of Delaware, Continental Finance cards are among those labeled "fee harvester" credit cards in a 2007 report issued by the nonprofit National Consumer Law Center.
In late 2008, First Bank of Delaware agreed to pay $304,000 in penalties and to overhaul procedures to settle charges filed in June 2008 by the FDIC. The complaint said that marketing for Continental Finance MasterCards issued from March 2006 through June 2008 and other cards issued by the bank failed to adequately disclose significant up-front fees and misrepresented what the consumers' initial available credit would be.
CompuCredit, an Atlanta financial services and marketing company, was also named in the complaint. CompuCredit was First Bank of Delaware's partner in marketing and servicing cards issued under other brand names such as Imagine MasterCard. Filings with the Securities and Exchange Commission show how lucrative the credit-card business is. In 2007, CompuCredit reaped $673.9 million in credit-card fees, up from $436.7 million in 2006. Under CompuCredit's 2008 settlement with the FDIC, the company has agreed to reverse $114 million in fees charged to consumer accounts arising from deceptive marketing allegations. The company also will pay a $2.4 million civil penalty.
The FDIC order requires that the company disclose information about fees and other restrictions affecting available credit prominently on the same page in its solicitations. "No changes in our existing marketing materials are necessary because in 2006 we made changes in our solicitations that address the agencies' concerns about placement of fee-disclosure information," says Tom Donahue, a CompuCredit spokesman. The Federal Reserve Board has approved new rules for credit cards that limit total security deposits and fees during the first 12 months to 50 percent of the initial credit limit.
A better alternative for consumers seeking to rebuild poor credit histories is a secured credit card, which requires a cash deposit of at least $200 to $300 as collateral. The amount of cash deposited will typically be the initial credit limit. Making timely payments should boost the credit score, so look for a card that reports to the three major credit bureaus and has no application fee. Interest rates on such cards recently were in the mid-to-low teens, and annual fees should be no more than $50.
"Billions of dollars available in government grants, never repay!" claimed an ad recently at FreshGrants.com.
No, it's not your share of the Treasury Department's multibillion-dollar bailout plan for the financial industry. It's an enticement for a "Free Grants Kit" that the Web site claims will explain how to apply for government grants for which you may or may not be eligible.
As for "free," that's open to interpretation. You're asked to provide your credit-card info to pay $1.98 for shipping and handling. By ordering the "free" grant kit, you're agreeing to pay fees for monthly access to Grant Funding Search and a trial membership in the Ideal Wealth Builder Club, which includes benefits that "will show you how to turn your debt into wealth."
But the ad's fine print said that if you didn't cancel within the free trial period, your credit card would automatically be charged $99.90 in combined membership fees every month. That's how to build wealth, all right, just not for you.