CNN Money has posted an article that discusses a credit card offer from First Premier Bank with a huge 79.9% interest rate. The card is geared toward people with little credit or bad credit and starts out with a $300 limit and a 29.9% interest rate. Six months after opening the account, the interest has been known to jump from 29.9% to 79.9%, but the card was still popular with consumers, nearly 700,000 people have signed up for it and about half of them carry a monthly balance.
Because so many cardholders were defaulting due to the high interest, First Premier dropped the interest rate down to 59.9%.
“We also tested it at 23%, 33%, 45%, but 59.9% is the one that shows the best performance and where the organization can market the product,” said First Premier Bankcard CEO Miles Beacom.
And yes, that rate is completely legal. The Card Act, which was passed in late 2009 to protect consumers from predatory lenders, only prevents issuers from raising rates retroactively. Credit card issuers are free to charge whatever rate they want at the front end.
First Premier doesn’t deny that they have high fees for everything:
First Premier charges a total of $135 per year in fees. It starts with a $45 processing fee to open the account. Then there’s an annual fee of $30 for the first year — $45 for every subsequent year. Plus, there’s a monthly servicing fee of $6.25 (or $75 a year).
Cash advances will cost you $5 or 3%, whichever is greater; late payments ring up at $35. The bank will also charge you $35 if a payment on your account is returned due to insufficient funds or any other reason.
But Beacom said the bank used to charge $175 for just the processing fee and annual fee alone.
The fees don’t seem to be scaring consumers off- First Premier receives 200,000 to 300,000 applications monthly because of the demand for a credit card for people with “less than perfect credit.” But because of the new Credit Act, the company is being cautious and only opening around 50,000 accounts a month.
If you have had problems with a credit card and have questions or concerns, feel free to contact us through our website or by calling 205-879-2447.
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