http://finance.yahoo.com/news/Credit-cards-newest-trick-799-apf-3359014390.html?x=0&.v=4 NEW YORK (AP) -- It's no mistake. This credit card's interest rate is 79.9 percent. The bloated APR is how First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It's a strategy other subprime card issuers could start adopting to get around the new rules. Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card's credit line. In a recent mailing for a preapproved card, First Premier lowers fees to just that limit -- $75 in the first year for a credit line of $300. But the new law doesn't set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent. "It's the highest on the market. It's the highest we've ever seen," said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings. The terms are eyebrow raising, but First Premier targets people with bad credit who likely can't get approved for cards elsewhere. It's a group that tends to lean heavily on credit too, meaning they'll likely incur the steep financing charges. So for a $300 balance, a cardholder would pay about $20 a month in interest. First Premier said the 79.9 APR offer is a test and that it's too early to tell whether it will be continued, according to an e-mailed statement. To comply with the new law, the bank said it will no longer offer the card that has $256 in first-year fees as of Feb. 21, 2010. However, customers will still be able to use their existing cards. The bank said "no final decisions" have been made regarding any rate changes for those cards. First Premier noted that it needed to "price our product based on the risk associated with this market." The bank declined to specify how many people were offered the 79.9 APR card. According to First Premier's Web site, the credit cards are serviced by its sister organization Premier Bankcard. The company, based in Sioux Falls, S.D., says Premier Bankcard is the 10th largest issuer of MasterCard and Visa cards in the country, with more than 3.5 million customers. In a mailing sent to prospective customers in October with the revamped terms, First Premier writes "...you might have less-than-perfect credit and we're OK with that." The letter notes that an online application or phone call is still required, but guarantees a 60-second status confirmation. The letter also states there are no hidden fees that aren't disclosed in the attached form. That's where the 79.9 percent interest rate and $75 annual fee are listed. There's also $29 penalty if you pay late or go over your $300 credit limit. Even if First Premier doesn't stick with the 79.9 APR, it will likely hike rates considerably from the current 9.9 percent to offset the lower fees, said Shahani of Synovate. The revamped terms may not be the only changes; First Premier also appears to be moving away from the riskiest borrowers. The bank typically mails offers to subprime households, meaning those with credit scores below 700. In the third quarter, however, 84 percent of its offers were sent to subprime households, down from 91 percent the same period last year, according to Synovate. First Premier could be cleaning up its credit card portfolio since the new regulations will limit its ability to raise interest rates. That could mean First Premier won't issue cards as liberally to those with bad credit. As harsh as First Premier's terms seem, that could be a blow to those who rely on the card, said Odysseas Papadimitriou, CEO of CardHub.com. "Even when the cost of credit is astronomical, for people in true emergencies, it's much better than not having access to credit," said Papadimitriou. Until Feb. 21, First Premier is still offering its even-higher-fee card online. So the price for credit the bank charges is at least $256 in first-year fees.
It's companies like these that I can easily but in the same box with Drug dealers, Pimps, kidnappers, human traffickers. What they do is a crime but only protected by bendable law. I wouldn't mind if their CEO, CFO passed away in a horrible car wreck.
We let the states decide because of that theory where consumers shopping for interstate rates promotes competition against monolithic companies. Except now almost all CC companies are incorporated in Delaware. Conservative boilerplate talking points FTL.
This sounds like Cross Country Bank a few years ago. You open a credit card with them with a $300 limit. They send you the card, along with a statement with a $200 annual fee and a $100 origination fee already on the account. Well, since you’re over the limit, they put an over the limit fee on there as well. So before you even use the card, you’re over the limit and $350 in the hole. You send in a payment and it takes them WEEKS to apply it (if they apply it at all). The next month, you get another statement with a late fee and an over the limit fee. And you've still never even used the card. Google 'Cross Country Bank Complaints' and see what you come up with.
With the bad debt risk their borrowers present, it's no wonder the company would charge so much. The guys who struggle to pay off their debts have to subsidize the ones who don't try, or else the company won't operate. Passing a usury law would eliminate credit available to these people. Not that that's a bad thing. People who would willingly sign up for an 80% APR credit card probably need to be protected from themselves (note to self: make sure brother-in-law never hears about this company). It reminds me of the micro-lending industry in places like India and Mexico. Micro-lending provides loans to groups of poor women so they can run their own businesses. It's a public good that credit is made available to the poor to try to self-employ. On the other hand, it's a high-risk group engaged in a high-risk endeavor. Oftentimes, bad debt does result and the micro-lending companies have to lean on some very, very poor people.
There might be an economic justification (confirmed in dollars) for creating a subprime credit market in the US. I think help would better come in the form of debt consolidation and money management rather than making a bad situation even worse. Furthermore, there’s no guarantee that the government won’t bail out First Premier or its counterparties should they grow unfettered and defaults become overwhelming. I feel we’re better off shutting them out with stronger consumer regulation (for the company's sake as well) and addressing credit for the subprime “market” head on.
If somebody is that desperate for credit, let them have it. Then again, if somebody's credit is so jacked up that they can only get a 79.9% credit card rate, it might be best for them to clean up their credit report and pay cash for everything, until they can qualify for something better.
here's a great idea...don't spend what you don't have interest rates shouldn't matter...you shouldn't buy anything if you can't pay cash for it (obviously emergencies are excluded)
Why you trying to gig me with that sig? hah. I love when dumb people get taken advantage of. Its America. If you can burn someone you don't know to reap a benefit burn em.
Sounds a lot like Mexico. http://www.usatoday.com/money/world/2008-11-13-mexicocredit_N.htm Honestly, too-easy credit has led to a huge amount of our current troubles. But it was encouraged because it gave the (phony) face of a healthy expanding economy.
Hey, I guess the fact that Bank of America increased the interest rate on my credit card to around 30% isn't that bad! Luckily, the balance on my card is only $50 or so.
Well, obviously. But that doesn’t make what these companies do right. Raping people is still wrong whether the people are stupid or not. Plus, like you said, what if it’s an emergency? Like a medical emergency? The part that burns me up is that these stupid companies that lend money to people who they KNOW can’t pay it back will eventually go broke and the taxpayers will have to bail them out.
I despise Bank of America. Bank of America had purchased the banks that owned my original credit card accounts. After they imposed a new annual fee in November, I canceled all 3 cards and got the annual fee credited.
One way of improving your credit score would be to get one of these cards, use it regularly, and pay the debts off reliably. If you were someone with terrible credit, but then you got a good-paying job and you knew you'd be stable going forward, that might be a decent strategy. Of coruse, that doesn't really apply to 99% of these borrowers. Your caveat captures the problem here. Emergencies do come up, and people with poor credit cannot leverage a short-term loan to take care of it without these subprime companies -- or Western Union. This company hasn't really changed it's model though -- they just shifted the cost to the consumer from the fees to the APR. The margin is probably the same. They have always been usurers. The new law just makes it a little more plain.
Same except replace Bank of America with Chase. Hopefully my Amazon card still keeps on working reasonably.
For the most part I agree, but for houses/cars that doesn't really hold true. I'm not saving up $200,000 before I buy a house. But for these little credit cards, yeah, I'm all for not spending unless you can pay it off immediately. It's probably why I have zero debt.
We can add education to that bill also. I don't see how anybody can pay cash for a college education while working a low-skilled job, unless they are using somebody elses's money. Unless, you are on an athletic scholarship, or genius.
