Bank Offers Credit Card With 79.9% APR

(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.
By AP Personal Finance Writer Candice Choi
By AP Personal Finance Writer Candice Choi

[enwr77]

Now there needs to be we the people regulations. Anyone who knows the rates and still applies for this credit card deserves to pay. Let's start using our own brains and not depending solely on government. Hopefully publishing this article will serve justice on First Premier Bank.

[askagain]

enwr77 - You are correct. People need to become educated and use common sense. These companies probably hire some of the most talented lawyers and creative people. It is difficult to beat them at their own game. They probably know the rules better than the government. I just received an attractive offer from DirectTV in the mail. After researching consumer complaints on the internet, there is no way I will sign up with them. As much as I dislike my cable company, there is no need to return equipment through the mail, no contracts to sign, and no long term commitments. As you point out, the government can only do so much. It is up to us to avoid rip offs and overcharges.

[bc-1948]

They should be closed - but greed is a difficult thing to control - this is a prime example why government regulations are needed. Without them, greed controls everything. Capitalism without government restraints is a terrible system. - resulting in the wealth concentrated in a very small group - and if you look at the every decreasing the of American population that control bigger and bigger % of the total American assets - we have been on that track.

[askagain]

How many of you would loan money to people who are in risk of walking away from their loans. We have both desperate and dishonest people out there who are would walk away from their debts when they can no longer afford their debts. Perhaps, a better solution would be to not market credit cards to certain people. If we did that, we would have people screaming discrimination and arguing that we don't cut these people some breaks. Why not make credit cards a right and let the government cover their debts in the event of default. We are doing this with health care. Why not credit cards, too?

[Sky017]

There will always be the example of some who use credit cards and it works out well for them.

But, this industry is based on the STATISTICS of people who carry a balance. And that statistic is fairly high. So yes, THEORETICALLY... nothing wrong with credit cards. But there is the REALITY of HUMAN NATURE and behavioral patterns.

So some advice to most people is:

1. You only NEED 1 credit card. Keep the one with the lowest interest rate and cut up all the rest.

2. Use debit and prepaid credit cards. (Search carefully, you CAN get prepaid credit cards with reasonable fees. You'll end up paying less on those fees than the interest fees on many regular credit cards.)

3. The only things you NEED to live are FOOD AND WATER, and shelter. Everything else can WAIT. Don't be duped that you 'gotta have it!'. The only other thing a person NEEDS is INTEGRITY. Forget about pleasing other people or what they think. Your clothes, cars, etc don't DEFINE you. Your legacy defines you. At a funeral do they say that anyone wore xx brand or drove xx car? No.

What can be said about you at your funeral gives you a gauge of what really matters.

[bubbadubba]

<<<How about a 79% tax rate on income for this Bank????>>>

Great idea. I wish you were in charge of the Treasury Department instead of that bank puppet clone of Paulson and the wealthy.

[bubbadubba]

<<<to the contrary I use my one card for everything; groceries, gas, utility bills, car insurance, everything. pay it off every month and get 1 1/4 percent back>>>

Good for you!
And you don't pay a fee of any kind, and paying it off each month does not drop your credit score, they just process the card each month for free, and you are making a good profit off the deal in fact a lot more than any discounts or offers.
Wow!
Don't forget to report all that profit to the IRS and pay taxes on it.
By the way, what credit card company do you work for?

[ajvw]

I don't work for a credit card company. I have a card issued by USAA. They've never sent me a 1099 so I doubt that it's taxable.

[bubbadubba]

OK, let's get real folks.
You can go to the grocery store or Wal Mart and get a prepaid credit card for a nominal fee and not even have to worry about a bill.
I have quit using the two credit cards I have left and am paying them off.
I have 1% interest on them ( prime plus 1%) but credit cards are such a scam I don't want a single one.
Anyone who uses a credit card is a fool in my opinion and that includes me for using those things in the first place.
Debit and prepaid cards have made credit cards obsolete.

[ajvw]

to the contrary I use my one card for everything; groceries, gas, utility bills, car insurance, everything. pay it off every month and get 1 1/4 percent back

[citizenusa-2009]

I agree completely and have done the exact same thing. The credit card companies have long been loan sharks and should have been heavily regulated. Unfortunately they have managed to pay off the politicians who we elected to represent US, and because of that greed, the tax paying, hard working, war fighting citizen gets rammed.

They have gotten away with theft for so long that r.a.p.e. of the consumer has become common practice.

They (the credit card companies and banks) are a sickening facet of our society and should be shunned at any cost. Prepaid cards just make the most sense.

[bubbadubba]

How can I get one of those cards?
Does anyone think any court in the US will let them sue someone to collect on a card with 80% interest? It's called JURY TRIAL.
See, not regulating credit really improves choices for people and improves things just like the Republicans say.
LOL

[mollydtt]

People who think this card is a good idea probably thought putting zero down and getting a variable rate mortgage on a house was a good idea.

[us_1776]

This is pure insanity and greed. Card interest rates need to be tied to the prime rate. Maximum rate should be no more than 15% above prime rate.