Friday, December 18, 2009

New and Improved: Credit Card with 79.9% APR

Remember in early summer the legislators cheered as a credit card reform bill was passed by congress and signed into law by President Obama. This was going to be so great for consumers legislators claimed.

“This is a victory for every American consumer who has ever suffered a
the hands of a credit card company,” said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee. The bill passed the Senate 90-5.

"Consumers will have more money to invest in the economy instead of paying off debt," Rep. Carolyn Maloney, the New York Democrat who sponsored the House credit card bill, said just before the vote. "Americans want this bill."

So I wonder if this is what they had in mind when the legislation was passed:

From the Washington Times:

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.

Read the entire article here

Don't get me wrong, if this interest is going to make someone, who probably should not be getting a credit card anyway, think twice it is a good thing. However, knowing congress as I do. This has the potential for a future "crisis" to bailout the people who don't make the best choices. Isn't that how we got into this fix?

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