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.
When her mother tried to pay Applied's bill online, she was shocked to learn the bank even charged her a fee for the online payment.
Even though Alvarez and Koslan made regular payments to Applied – sending the bank nearly $300 over four months – Alvarez says she felt as if she was throwing the money away because her balance kept growing. By mid February, Applied said she owed more than $500, despite the hundreds of dollars she had already paid. Even after she closed her account, Applied Bank continued to charge Alvarez a $10.95 monthly maintenance fee to "maintain" her dormant account.
Manning says Applied Bank is one of the handful of companies he lists in his Credit Card Hall of Shame.
"When you add on the penalty fees and the services fees for payments, you realize that the interest rate is over 200 percent," Manning says. "They offer the consumer so little credit and it's driven by hundreds of dollars of fees."
Alvarez says she eventually got so bogged down in credit card debt she was unable to continue paying for school. So she quit.
"We don't have the money now," Alvarez says. "We're too busy paying for this ridiculous bill."
Cardholders Called 'Deadbeats'
Applied Bank, which issued Alvarez her card, was founded in 1996 as Cross Country Bank. While it has changed names twice since then, it continues to be owned and operated by the man who founded it, Rocco Abessinio.
Abessinio is a self-made millionaire who has cultivated an image as a benefactor to various charities in Delaware and Florida, where he owns a $3 million home.
But Abessinio's critics, including lawyers who have chased him for years, say his charity work only masks the money he earns from the low income borrowers to whom he lends money.
Some sources put his personal wealth at over half a billion dollars. While his net worth has not been released publicly, it appears from federal bank filings that he has paid himself at least $500 million, if not more, in dividends drawn from Applied Bank.
Abessinio refused repeated interview requests by ABC News and "Good Morning America" and referred reporters to previous statements he has made to the media about his business practices.
In press accounts he has defended his company's operation by saying he charges steep fees on his credit accounts because he lends money to the riskiest of borrowers. He says he provides credit to those others will not, but that his high-risk client base forces Applied to charge off millions of dollars in debt. In 2004, he told the Wall Street Journal he runs a "good, clean company."
That's not how some former employees describe his businesses. Former customer service representatives who worked for Abessinio at call centers in West Virginia and Florida have testified against him in multiple lawsuits, saying his marketing practices were deceptive and his collection tactics abusive.
Iris Taylor worked for Abessino's affiliate company, Applied Card Systems, for five years in Boca Raton. Last spring she was deposed for a class action lawsuit against Abessinio and his companies.
Taylor says she was told by employees and managers that credit card customers should not have fees waived.
"There's a charge for everything. That's what we were told from day one. This is a fee-based company. That was what we had to know," Taylor says in the grainy video deposition that was obtained exclusively by ABC News and "Good Morning America."
"Cardholders were referred to as the scum of the earth and the lowlifes that we deal with, and they're all a bunch of deadbeats," Taylor says.
Abessinio recently settled the class action suit for which Taylor was deposed. He agreed to pay $27.1 million in restitution and fee-credits to current and former customers of his companies.
That suit is one of several filed against Abessinio and his companies in the past 10 years.
Attorneys General from nine states have sued Abessinio and his companies for unfair marketing and collection practices. Eight settled the suits with Abessinio, allowing him to agree to modify his business practices without admitting wrongdoing.
The Federal Deposit Insurance Company, or FDIC, insures Applied Bank's deposits and, by law, regulates its activities. In 2002, it issued a cease and desist order against Abessinio's bank and questioned the company's lending practices.
There is no record of any formal FDIC enforcement action against the bank since 2002. It is not clear if the FDIC has issued what it calls "informal" enforcement actions, secret orders FDIC regulators say are not made public. An FDIC spokesperson told ABCNews the agency could not comment on pending investigations or confirm if they exist.
The new Chairwoman of the FDIC Sheila Bair agreed to a taped interview to discuss "fee-harvesting" credit cards, but her staff abruptly canceled the meeting when they learned the discussion would focus on Abessinio and Applied.
Delware's Banking Commissioner, Robert Glen, is responsible for enforcing Applied Bank's state banking charter. He too initially agreed to an interview, but stopped returning a producer's calls or e-mails after he was told the conversation would focus on Applied.
Visa, the credit card processing network with which Applied does business, refused to comment on this story, as did the American Bankers Association.
Waives Fees to Get GMA 'Off His Back'
One organization agreed to discuss fee-harvesting credit cards with ABC News.
The president of the American Financial Services Association, which lobbies on behalf of credit card services and other lenders, says Applied Bank is not a member of his organization. But, he says, he does defend the concept of cards with high fees and low balances as a way to improve credit.
"If they are informed and they truly know what they're getting into, or the credit card that they're signing up for, then we think it's a business decision that each individual has to make on their own," Chris Stineberg told Chris Cuomo in an interview for "Good Morning America."
Stinebert told Cuomo he believes fees and interest rates should not be capped by the government, but should be dictated by the open market.
"Do we make people that are paying on time pay a higher rate, and have fewer options?" Stinebert said. "Or do you make the people who are not making their payments on time have to pay according to what their risk, analyzed, really is?"
Stinebert adds that his organization believes credit card disclosures should be fair and should not include the "fine print" Alvarez and her mother say they encountered when signing up for the Applied Bank card.
Unlike most Applied Bank customers, Alvarez and Koslan eventually had all of their fees waived, but not because they asked.
After a producer for ABCNews requested an interview with Abessinio and explained "Good Morning America" might feature the pair in an upcoming segment, Abessinio called Alvarez and her mother.
Koslan says the banker offered her daughter a new Applied Bank card with a lower interest rate and fewer fees. Koslan refused the offer and asked if Abessinio would close the account and absolve the remaining fees if she paid the balance left on the card which represented what Alvarez had borrowed.
Koslan says Abessinio agreed to a final payment of $150. She says Abessinio told her he was "only doing it to get that guy from Good Morning America off [his] back."
With her debt gone, Alvarez is considering returning to school in the summer.
And she and her mother say they have learned a valuable lesson from their experience with a "fee-harvesting" credit card and want to share it with others.
"For somebody that's young and just starting out like Celina or somebody that's in a more unfortunate situation, I would totally discourage them from going this route," Koslan says. "All it does is cause more heartache and more disappointment and more debt."