Who Wants a Credit Card with a 79.9% APR?

Anyone? Anyone?

Well, it seems like First Premier Bank thinks people are willing to accept that kind of outrageous interest rate.

It's actually just one example of how credit card companies are attempting to find loopholes in the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, and generally find ways around the regulations it imposes on the credit card industry.

Some of those regulations went into effect in 2009, and the remainder go into effect on February 21st of 2010. Because of this, many credit card companies are rushing to have their changes to the terms in place before that date.

One of the changes that go into effect in February is that credit card companies will be prohibited from raising the APR unless one of the following criteria is met:

1. The underlying interest rate index changes
2. The card holder is significantly late on his payment
   
   

First Premier Bank has to be one of the most egregious examples of a credit card provider gaming the system.

It shouldn't be surprising, since First Premier has built it's business by being a subprime credit card issuer - i.e. targeting people with poor credit (and poor money management skills).

Once the new regulations go into effect in February, credit card fees are capped at a maximum of 25% of the card limit. The subprime credit card offered by First Premier currently comes with a $250 credit line and a minimum of $256 in fees!

Premier's way around the new CARD act limitation is to change the terms like so:

Credit line: $300.
Fees: $75
APR: 79.9%


The fees come out to 25% of the $300 credit line, which meets the criteria for the CARD act, but since the act sets no limitation on the rate, they've hiked it to the sky at nearly 80%!

An 80% APR would be outrageous in most cases, but when you remember that this card is offered to people with bad credit and little opportunity for other credit, it becomes all the more outrageous.

The official explanation from First Premier is that they need to compensate for the additional risk inherent to lending to people in the subprime range of credit scores (under a 700 FICO score), and that existing card holders can keep their cards. That's not really a benefit if the rates soar to 79.9%.

Don't fall prey to these kinds of offers - and don't let your friends or family fall for them either. For anyone who has no credit history or a poor credit history, and is looking for a way to rebuild his credit, secured credit cards are a much better option.