A credit union that shares leadership with the Illinois Credit Union League is issuing a credit card that consumer advocates have condemned as a consumer unfriendly, “fee-harvesting” card.
The cards are issued by Services Credit Union, a privately insured, state chartered credit union that lists Daniel Plauda, the CEO of the Illinois Credit Union League, as its CEO and shares the same address as the ICUL.
Consumer advocates define fee-harvesting credit cards as those with low credit limits and high fees. According to 2007 report from the National Consumer Law Center on the topic “fee harvesting” cards “share a common thread: high fees that eat up most of an already low credit limit, leaving the consumer with little real, useable credit and at a high price.”
According to a financial statement from private deposit insurer American Share Insurance, Services Credit Union has 1,945 members, $227,625.00 in assets and had net income of $950 as of the end of March of this year.
The statement lists credit card balances worth $24,451.00 with an average interest rate of 15% as its only loans
ICUL declined a request for an interview.
“Thank you for your recent request for an interview with Dan Plauda,” wrote Patrick Smith, ICUL's vice president of communications and regulatory affairs in an email. “Unfortunately, the nature of your inquiry relates directly to a proprietary and confidential agreement thus prohibiting participation in an interview."
Services CU does not have a website.
Services is listed as the issuer of two Discover cards, the Matrix card and the Cerulean card, offered by the Continental Finance Company, a non-bank financial firm founded in 2005.
Continental Financial also has not yet returned calls about its cards, but it is one of the companies named as a fee-harvesting issuer in the NCLC report.
Services is not CFC's first issuing partner. The company had been issuing cards in partnership with the First Bank of Delaware, based in Wilmington, until June 2008 when the bank was served with a cease and desist order from the FDIC. Parts of the order's Notice of Charges reads like the CFC card terms of today:
“The CFC Cards were marketed as a MasterCard credit card with an initial credit limit of typically $300 with low annual fees. However, initial fees, typically consisting of a set-up fee of $99, participation fee of $89, and an annual fee of $49 or $27 were charged and posted to the consumer's CFC Card account immediately after the consumer applied for and was issued a card. The Bank and Continental Finance also charged the consumer a monthly maintenance fee typically of $10.00. This fee was posted to the consumer's account immediately after the consumer was issued a card.”
The cards are not available in Connecticut, Georgia, Hawaii, Massachusetts, Minnesota, Montana, North Carolina, Washington, and the District of Columbia, according to the CFC website, and Continental Finance says that if a cardholder moves to one of these states, it will close the account. The company's website does not say why.
The website also contains four links to CUNA information pages about credit unions, below a statement that reads, “The Credit Union Difference: Why we remain a necessary and extremely popular financial alternative.” The site also carries the Americas Credit Union logo. Contacted about the use of the logo and the link, CUNA spokesman Pat Keefe explained that the association has a policy of notifying a website owner if it looks like the owner is using the logo fraudulently, but said the association had not determined if that was the case here.
According to disclosures tailored to the states where the cards are issued, the APR for the cards is 29.99%. The cards have credit limits of $300 and each carries an annual fee of $75 which is taken as soon as the card is opened, leaving the cardholder with $225 available credit and an immediate bill for $75.00. Further, after the first year, the issuer will charge maintenance fees of $144.00 per year in monthly increments of $12.00 and will also charge $4.95 per month if the cardholder receives paper statements. Other fees will also kick in after the first year.
Further, NCLC said expect the fees to rise. The 2009 Credit Card Accountability Responsibility and Disclosure Act capped such fees charged when a card account is opened at no more than 25% of the available credit limit for the first year. But that element of the act has been overturned in court and no regulation has yet replaced it, Chi Chi Wu, staff attorney at the NCLC said, so there is every reason to expect Continental Finance and Services CU's fees will rise later this year.