Credit card's newest trick: 79.9% interest

[Scott50]

December 17, 2009

NEW YORK(AP)--It's no mistake. This credit card's interest rate is 79.9%.

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% 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%.

"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 steep financing charges.

So for a $300 balance, a cardholder would pay $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.

According to First Premier's website, the credit cards are issued 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% interest rate and $75 annual fee are listed. There's also $29 penalty if you pay late or go over your credit limit. The credit limit is $300.

The bank did not say how many people were offered the 79.9 APR card, but noted that it needed to "price our product based on the risk associated with this market."

Even if First Premier doesn't stick with the 79.9 APR, it will likely hike rates considerably from the current 9.9% 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% of its offers were sent to subprime households, down from 91% 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.

http://www.usatoday.com/money/perfi/credit/2009-12-17-subprime-credit-card-apr_N.htm

[frogger]

Oohhhhh.... I really like those terms. You think they would let me have 3 or 4 of them cards with that rate? I'm sure that everyone in my family would like one too.

[PacificBlue]

Oh *&^%% ya, I need one before I file!

Really, I would rather go to Vegas and borrow money from a guy named "Sharkey" then use one more credit card.

[NHC]

[justbroke]

Usury rates need to be controlled. This is a slap in the face to the Congress who thought they were "helping" us. The banks, in this case, have laughed at Congress' interference with commerce and pulled a "yeah, now how do you like that... we're following your rules!"

[ForumReader]

as well, at least the rate is lower than most payday loans. Still... it irks me to no end how credit companies are raising interest rates, fees, etc just before the credit card new laws go in effect next month. How is that helping with what credit card companies are doing? Nothing, really IMO

[flyinbroke]

The CARD act was a bullshit gesture. If the govt had any stones at all, they would not have given the CC banks nearly 2 years to f*** with consumers. If they were serious about cracking down, it would have happened before the banks had the opportunity.

And to think Al Capone got jailed for charging, what, 10 percent interest?

[banca rotta]

Oh *&^%% ya, I need one before I file!

Really, I would rather go to Vegas and borrow money from a guy named "Sharkey" then use one more credit card.

Funny

[JRScott]

Usury rates need to be controlled. This is a slap in the face to the Congress who thought they were "helping" us. The banks, in this case, have laughed at Congress' interference with commerce and pulled a "yeah, now how do you like that... we're following your rules!"

Congress did help us in a round about way, perhaps with such rates people will finally realize that you have to live within your means using little to no credit and then using it only for assets such as home, car and education and nothing else.

[Flamingo]

As to additional fees with cards - watch those notices and updates being sent out by your present credit card carriers...fees are now being charged each month for paper statements. A friend of mine at work has a Blair charge and got an update notice in the mail the other day stating that effective 1/1/10 $1.00 per month will be assessed to the account for every paper statement mailed. Since Blair is a company targeted to older folks (clothing, senior items, etc., etc.), what if the older folks don't like or have computers to get online statements? Or don't bother to read the tiny printed notice sent out by the company?

[broken64]

Are they NUTS??? 79.9% interest, hahahaha...wow I thought my business card being a 39.9% interest was high...(shed a tear...they got to eat it with my BK)...I have been getting emails and mail from this same company to get my credit started. Luckily, I wasn't born yesterday so they can stick their offers, because I for one don't need anything to do with them

[JustFileSuit]

First Premier Bank is what is known in the trade as a "fee harvester" card outfit. Historically, their business model was to "offer" a card to very-low-income folks, mostly those quite illiterate about credit, with a "secured card" security deposit of say $300. Then the "Card," which as an $300 credit limit, attracts a host of "fees" for getting it started: typically, leaving you with about $6 of free money on the Card. The other $294 of your deposit cash just got eaten up by the fees.

Now what happens is that the cardholder instantly goes over-limit with the very first purchase, since they "think" they have a secured card of $300 less maybe $30 in starting fees, but have not realized all the other fees that the harvester has clipped them for. The customer gets whacked for $29 over-limit, and then the same on each additional card purchase (which First Premier is only too happy to approve).

These are the worst low-life scum on the planet. They belong in jail, but are not, due to a loophole created by a compliant South Dakota legislature, which removed all restraints on these outfits in exchange for the industry's promise of "jobs" in their State. the vultures are all from other States, who just carpet-bagged and set up shop there as a result, and are now doing this exploitation of the poor and the non-literate, compliments of the SD Legislature. Ugh.

[LALADY]

I got one of those in the mail today as a Christmas present. Anyone want a recycled gift?

[justbroke]

These are the worst low-life scum on the planet. They belong in jail, but are not, due to a loophole created by a compliant South Dakota legislature, which removed all restraints on these outfits in exchange for the industry's promise of "jobs" in their State.

First, I would say that Pay Day loan companies are worse. Second, I'd ask you to think about where the majority of credit card companies are actually based out of? Yes... Wilmington, Delaware! Credit card capital of the entire world.

Even your local Credit Union or National Bank receive a good chunk of their revenue and profits from fees. This has always been the case. The general public is just starting to become aware of this. When I was younger and made less than $50K a year, I use to hit banking fees all the time (over the limit, overdrawn checking account, etc). When I got older and smarter, I started leaving at least $1K in my checking account so I'd never overdraft... plus had a $2.5K overdraft account. The fees disappeared. I'm estimating now, that I spent about $200/month on various fees from banks and credit cards... not including interest. It's a huge business!

[Flamingo]

First Premier Bank is what is known in the trade as a "fee harvester" card outfit. Historically, their business model was to "offer" a card to very-low-income folks, mostly those quite illiterate about credit, with a "secured card" security deposit of say $300. Then the "Card," which as an $300 credit limit, attracts a host of "fees" for getting it started: typically, leaving you with about $6 of free money on the Card. The other $294 of your deposit cash just got eaten up by the fees.

Now what happens is that the cardholder instantly goes over-limit with the very first purchase, since they "think" they have a secured card of $300 less maybe $30 in starting fees, but have not realized all the other fees that the harvester has clipped them for. The customer gets whacked for $29 over-limit, and then the same on each additional card purchase (which First Premier is only too happy to approve).

These are the worst low-life scum on the planet. They belong in jail, but are not, due to a loophole created by a compliant South Dakota legislature, which removed all restraints on these outfits in exchange for the industry's promise of "jobs" in their State. the vultures are all from other States, who just carpet-bagged and set up shop there as a result, and are now doing this exploitation of the poor and the non-literate, compliments of the SD Legislature. Ugh.

This is the same as the former "Aspire Bank" from which we received numerous offers during our Chapter 13 with the same limit, fees and loopholes. All it took was one readthrough of the information and if anyone had at least a basic knowledge of finance 101, they would shred it and destroy/recycle. They were taking advantage of folks with really bad credit or in BK who just had to have that credit card.