How's this for a credit card rate: 79.9 percent
Associated Press
Dec. 17, 2009, 1:42PM
NEW YORK — 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 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 Web site, 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 percent 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 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.