ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, November 26, 1996 TAG: 9611260089
SECTION: NATIONAL/INTERNATIONAL PAGE: A1 EDITION: METRO
DATELINE: NEW YORK
SOURCE: ASSOCIATED PRESS
OFTEN, THE CREDIT CARDS have large fees that could bring families more financial trouble.
Digging for gold in the growing mounds of tarnished credit and bankruptcies, some credit-card issuers are issuing cards to some of the worst credit risks - sometimes charging hundreds of dollars in fees.
Consumer groups are worried that many families with already burdensome finances will be enticed to take on more debt just to pay for a new card.
``We've begun to see more and more of these offers, and we suspect this is an area that's going to grow,'' said Ruth Susswein, executive director of Bankcard Holders of America in McLean.
``But be aware that these offers can be very costly and may be a bad deal, although they're certainly not going to be pitched that way.''
Until recently, people with past credit problems could only get credit cards if they first put up enough money to at least cover their credit limit.
The new products aren't secured, but holders of the new cards are required to make an up-front payment or pay special fees over time. These fees can sometimes be considerable and, unlike a secured account, they don't earn interest.
AmCredit in Sioux Falls, S.D., buys debts that others have given up on for pennies on the dollar. Through a 5,000-card pilot program launched last May, it asks people who have already been through bankruptcy to repay all or a portion of their old debt. In exchange, AmCredit will extend a modest line of new credit, typically 10 percent of what the bankrupt person agrees to pay back.
Susswein says the offer isn't a good deal. Anybody who has been through bankruptcy has already had the debts wiped out.
``Don't assume debt that is already not yours to pay,'' she said.
Martin Burke, vice chairman of Service One, which markets and services the AmCredit program, said the AmCredit cards offer ``an opportunity for people to take advantage of one of their old obligations to re-establish themselves as credible.''
Some creditors don't want to lend money to people who have only had secured cards, because they don't demonstrate that someone can actually pay back a loan, Burke added. Cardholders do not pay an initial fee, but pay a 6.9 annual percentage rate for the first six months and 18.99 percent thereafter.
First Premier Bank in Sioux Falls offers loans from $250 to $1,000, for which consumers pay a $49 up-front processing fee, another $89 to join the program, plus an annual fee of $89. Of the total $227 initial cost, $178 can be paid out over time, but that counts against the card holder's credit limit. Cardholders pay a 21 percent annual rate.
Bill Connor, vice president for new business at First Premier, said some customers do not want a secured credit card because they incorrectly perceive that a merchant accepting the card for payment can tell it is secured, or because they have a hard time raising a security deposit.
First Premier, which piloted about 105,000 unsecured cards three months ago, also has several secured products in the marketplace, Connor said.
Cross Country Bank in Wilmington, Del., which recently bought Ocean Independent Bank's credit-card business, offers unsecured credit between $350 and $2,500. Consumers pay $100 up front, $50 a year, and an APR of 20.99 percent, Susswein said.
Susswein thinks a secured credit card is a better deal for people with spotty credit. Although the deposits for secured cards typically earn minimal interest - under 3 percent - that is still better than giving the money away in the form of fees, she said.
``I agree with [that] conclusion,'' Connor admitted, ``but the client is the person who makes the decision here.''
LENGTH: Medium: 72 linesby CNB