This year's editor's choice awards illustrated so much of the positive change sweeping the personal finance business. With banks competing on price and service, consumers enjoy access to affordable, useful tools to manage their credit and make secure shopping decisions. Still, a handful of companies keep trying to cash in on your worst fears about money. When credit card and debit card issuers start convincing you to "get what you deserve," they deserve to land in our annual Hall of Shame:
Worst retail card
It's too easy to pick on Fingerhut. It's almost enough simply for their tendency to send retail and gift catalogs to consumers who recently experienced job losses, credit card defaults and other financial calamities. The products are just fine, and the catalogs are actually quite nice. And, at first glance, the APR on their WebBank-issued store credit card is about 10 percentage points lower than the highest APRs we saw on universal credit cards during 2012.
While that's in line with many retail credit cards, Fingerhut's inflated pricing turns many name brand items into expensive impulse purchases that don't serve the goal of building a solid credit history. Buying an iPad here and paying it off over a year costs more than if you had purchased one directly from Apple using a credit card with a 40 percent APR. With some customers reporting on blogs and bulletin boards that Fingerhut only sporadically reports account activity to credit bureaus, there's no way that shopping here makes financial sense.
Most deceptive marketing
Applied Bank calls their Secured Visa Gold Credit Card "better than prepaid." The low, fixed APR in Applied's ads even make this card sound more attractive than many unsecured credit cards on the market. However, for a card to really be better than prepaid, it shouldn't cost any money to actually make a transaction.
Because Applied Bank eliminated the typical grace period from this card's terms and conditions, cardholders start racking up finance charges the moment they make a purchase. In fact, with the minimum finance charge imposed on monthly balances, you could even wind up paying much more than the posted APR on small transactions.
Worst secured credit cards
The Matrix and the Cerulean Discover accounts both appeal to consumers who have been turned down by other lenders, especially after bankruptcy or extended unemployment. Their ad pitches promise no application fees or upfront service charges. They claim to be "hybrid" cards, not secured credit cards, since their systems will determine just how much of your credit limit you'll leave as a security deposit. Hunting through blogs and bulletin boards, we couldn't find a single customer whose "hybrid" account required less than a full security deposit.
Both these cards bear the Discover logo, but they're not issued by Discover Financial Services. They're from a company called Continental Finance, who markets these products in partnership with an affiliated credit union. These cards manage to skirt federal predatory lending rules by charging an upfront fee against your credit limit, then imposing a monthly service fee. Those fees can amount to more than $200 per year, an outrageous price to pay when branch-based banks have started offer secured credit cards at less than one-fourth that annual cost.
Least magical prepaid debit card
We thought American Express would mostly blow out the remaining contestants in the "overpriced debit card" category after widening the launch of their fee-free Serve and Bluebird cards this year. However, a few "star-powered" cards hang on, oblivious to the notion that people don't like to spend money to use their own money.
Some cards attempt to add value by including online bill pay, credit monitoring or other fee-worthy features. Magic Johnson hit plenty of double-doubles on the court, but his MAGIC prepaid MasterCard just finds ways to double up on service charges. Along with a monthly fee, you'll pay a customer service surcharge if you need help from a live agent more than once every thirty days. Put Bluebird against Magic, and the matchup looks more like a Globetrotters/Generals farce than a classic Celtics/Lakers battle.
Most embarrassing credit card
Last year, we called the Visa Black Card the "least premium" premium credit card on the market. This year, we're just going to start a support group for anyone who thinks it's okay to spend extra money on a carbon-constructed card designed to mimic an American Express Centurion Card. It's like carrying a fake Louis Vuitton handbag, but without the joy of knowing that you only paid a few bucks for the knockoff.
Post-recession frugality is hotter than hot right now. If you're not carrying the "real" black card, let yourself get seen swiping a card that actually saves you money. Barclays, the Black Card's issuer, actually expanded the market for their superior Barclaycard Ring® Mastercard® low interest card over the past year (See Rates and Fees). Alternately, a Chase Sapphire Preferred® Card account comes with far more practical perks and privileges, with cash back rewards and an annual fee less than a fifth of the Black Card's.
The lifetime shame-chievement award
First Premier Bankcard CEO Miles Beacom has been complaining publicly for years about how new banking regulations have been hampering his company's business model. Before the Credit CARD Act, First Premier routinely issued credit cards for bad credit that carried APRs as high as 79.9 percent. Even worse, they tacked on fees that would reduce your available credit to a fraction of your credit limit, even before your card arrived in the mail.
Rather than run afoul of the Act, Beacom's company now charges application fees in advance, then draws the maximum service fee after issuing a new account: 25 percent of a cardholder's available credit. Credit line increases come with their own service charges, and most consumers who end up with one of this bank's accounts pay far more in interest and fees than they ever could actually spend on the card. First Premier wins this award for still championing the most cynical way to squeeze cash from consumers who need the most support and guidance during rocky financial times.
Even though there are some cash-draining credit choices out there, not all credit issuers are lying in wait for your hard-earned money. This past year, we saw some positive trends in prepaid cards, rewards programs and cash-back incentives. Perhaps next year, we'll see some more astonishing changes -- like First Premier moving off the list. But we won't hold our breath for that one.