When Celina Alvarez decided to enroll at the community college near her home in Hurst, Texas, last fall, she was nervous about starting school and worried about how she'd pay for it.
For Alvarez, the answer came in the morning mail.
"Well, Celina — after graduating from high school — was getting just bombarded with credit card applications," her mother, Angie Koslan, says. Since Koslan was worried her daughter might not qualify for financial aid, she suggested she apply for a credit card. "I said, 'Just open up a small credit card to pay the tuition, and I'll pay the bill.'"
Since Alvarez's mailbox was filled with offers and time was running out, she says she picked the first application she saw: a card with a small credit limit, which she thought would help her establish a strong credit rating.
She chose a Visa card with a $500 credit limit, offered by Applied Bank, a state-charted bank located in Delaware.
Alvarez got the card in August and used it once to charge $350 in tuition and fees at Tarrant County Community College.
"We didn't even use it on books. We just used it to pay for my classes and that was it," Alvarez says.
That one charge turned out to be one too many. That's because Alvarez unknowingly signed up for an account consumer advocates call a "fee-harvesting" credit card.
Fee-harvesting cards are typically sold to people in dire financial straits, who have low incomes or bad credit histories and are desperately seeking a line of credit. Banks offer the cards, which feature low initial balances and high interest rates, as a way to improve a person's credit rating.
According to a 2007 report by the National Consumer Law Center, fee-harvesting cards are marketed with bold mailings and online advertisements. Often consumers cannot tell the difference between advertisements selling regular cards and those offering fee-harvesters.
Robert D. Manning, Ph.D., who has studied consumer credit cards for more than 20 years, says fee-harvesting cards represent the "worst of the worst" of the subprime credit market, a category of cards offered to people with FICO credit scores less than 660. (FICO scores range from 300 to 850, the higher the better; a score of 720 or higher signals good credit.)
"These are people who are financially drowning and they're looking for that financial life preserver," Manning says. "What they don't realize is that there's an anvil at the end of it."
The weight of that anvil, Manning and others say, is created by loading any available credit down with hard-to-understand and almost always unavoidable fees.
Alvarez's first bill came with a $100 "origination fee," billed as a cash advance to her account, a type of transaction that immediately began drawing interest charges. The card also charged a $10.95 monthly maintenance fee, a monthly "purchase" that also drew interest.
Even though Alvarez had been granted a $500 credit limit, after she charged her $350 tuition bill, she was left with just $33 in usable credit.
"I was really upset," Alvarez says. "When I saw those little small charges, I was like, 'That's ridiculous!'"
What Alvarez says is more ridiculous is how quickly her account grew above her credit limit.
When her college tried to charge the second installment of tuition, Alvarez says she had such a small available balance left that the charge bounced, generating both penalty fees from her school and over-the-limit fees from Applied.