Issuer of 79.9% Interest Rate Credit Card Defends Its Product

[superconnected]

Source: Yahoo Finance News

APR Shocks Many, but Issuer Says They Are Pricing for the Risk

If you have bad credit in the new era of credit card regulation, be prepared to pay -- dearly -- for the privilege of using credit. That's the message underlying recent credit card offers that feature jaw-dropping interest rates of up to 79.9 percent.

The sky-high rates may be a sign of things to come in the market for so-called subprime credit cards as issuers who lend to the riskiest of borrowers try to figure out how to stay in business and comply with the new credit card reform law.

"We need to price our product based on the risk associated with this market and allow the customer to make the decision whether they want the product or not," according to a statement issued by Miles Beacom, CEO of Premier Bankcard, the South Dakota credit card marketer that mailed test offers in September and October featuring 79.9 percent and 59.9 percent annual percentage rates (APRs) on cards with $300 credit limits. Premier markets credit cards issued by First Premier Bank.

Yes, It's Legal

A national bank charging 79.9 percent interest on a credit card is legal -- as long as the issuer fully discloses the terms as required by the federal Truth in Lending Act. Still, the high rate has been met with shock across the country because it is so much higher than prevailing APRs and penatly interest rates. The CreditCards.com Weekly Rate report national average for bad credit credit cards was 14.15 percent on Feb. 12.

Read more: http://finance.yahoo.com/banking-budgeting/article/108839/issuer-of-79.9-interest-rate-credit-card-defends-its-product?mod=bb-creditcards

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I thought that 30% was insane. Pretty soon they'll be at 150% then 600% like the Money Tree lending places. Just to be clear I don't use credit cards. I bought a house a year and a half ago so got one card to establish credit for that - it was a whooping 2k card, and imo that card should be closed now. I only kept it past the house closing, in the chance I was going to be on unemployment and my savings ran out and I'd have an emergency.

[Posteritatis]

1. I guess they're at least still undercutting payday loan sharks.. ugh. (nt)

[hobbit709]

2. If your credit is so bad that this is the only one you can get

then you don't need a credit card to start with. You'd be much better of getting one of those prepaid cards.

[superconnected]

3. I don't even understand why someone would get a prepaid card.

I mean a debit card from the bank has the visa and mastercard logo so can be used anywhere - at that point - having a bank account is all you need.

[hobbit709]

4. Because some places put a hold on more than the amount charged

which could cause something to bounce against your bank account.

If you use the debit card at a gas pump, they usually put a $50 hold on it even if you only got $10 worth of gas. The hold may not be released for a couple days.

[ima_sinnic]

40. I've been using debit cards for at least 15 yrs & have never had a hold put on for gas

the only holds I ever had were the few times I rented a car--and at the time, the holds were made known to me so I figured them into my balance. The holds were on there until I returned the cars.
I have 3 debit cards, 2 from credit unions and one from PayPal, and use one of them constantly, never using cash. I've been doing this for years and have never had a problem.

[Book Lover]

8. Not all of us can get a bank account,

so prepaid cards are necessary for some folks.

[MercutioATC]

9. Honest question: What prevents somebody from getting a bank account?

[Book Lover]

10. Honest answer

Getting yourself into the ChexSystems round robin.

[MercutioATC]

12. What does that mean, in practical terms?

My son was 17, had no credit, no job history, and he had no problem opening a bank account.

He did have a government-issued photo ID (driver's license), but that's it.

[boppers]

16. Chexsystems is like massive *negative* credit reporting.

Say, for example, somebody opened accounts in your name in several states, at several banks. They they overdrew those accounts without ever paying it off. Banks (as a whole) take note of this, and refuse to open any new accounts for people until the prior issues are taken care of.

edit:typo

[MercutioATC]

17. Gotcha.

Thanks for the explanation.

[boppers]

11. Honest Answer #2

Unpaid debt/liabilities so you need to hide current assets.

[MercutioATC]

13. Ok, but that's an example of one CHOOSING not to have a bank account...

...not being unable to open one.

[boppers]

15. Is an account that you cannot take money from really an account?

Yeah, I guess you can open one, but if you can't use it, why bother?

[superconnected]

18. Good one!

[Not Me]

24. Lack of a social security number.

That is why all the check cashing houses pop up in areas where there are a lot of non-citizens living.

[jmowreader]

35. Prepaid cards are REAL handy and muy secure for online shopping

Assume you use your Visa debit card to buy something online and the credit card file they use gets stolen or hacked. You have inadvertently given some scumbag all the tools he needs to hoover your bank account. OTOH, if you buy a prepaid card that's got just a little more money on it than you need to buy the thing you want, they can hoover that all day long and you'll only be out a couple bucks.

[bergie321]

5. You can get

A secured credit card where you deposit $X amount and that is your credit limit. It reports to the credit bureaus like a real card.

[McCamy Taylor]

6. Loan sharks preying on the poor! Yikes!

[Mari333]

7. exactly. they smell blood. sharks, indeed. nt

[customerserviceguy]

14. I'll admit, these rates shock me

but after my 1996 bankruptcy, I used high interest rate credit cards in moderation to get myself back into the game. After a few years with one of them, you can drift down the interest rate ladder, and by the time the banko is gone, you have re-established yourself as a good borrower who has wiped out the traces of those old loan shark cards.

If you've had a medical or legal-related bankruptcy, and are otherwise a responsible person who wants to get back to having a good credit rating, then these might be your only first stepping stone. Right now, my rating is in the high end of the 700's. It's worth having that kind of rating again, especially if you want to get reasonable rates on auto insurance, or maybe a job that depends on having a good credit score.

[scentopine]

19. Isn't credit card reform a halmark of democratic leadership?

Just like health care reform and banking reform and...? Until we roll out the guillotines and start chopping off the heads of CEOs - we will suffer exploitation and injustice.

Mother fucking bullshit - wall street causes world ruin and they get free money - then they fuck over everyone else who needs help.

Jesus H Christ - why isn't that goddamn city in flames.

[defendandprotect]

20. We all have to begin to return to cash and checks and unload these cards ...

they're time bombs!

[stillwaiting]

21. They are doing this so that when the big banks begin raising interest rates

from where they are now. That we, the sheeple, will not take to the streets in any sizable numbers.

They're just setting the table now. Dinner will be served later.

We need usury laws, stat!

These orgs get money for free from the government and charge us criminal rates.

[No Elephants]

29. In Massachusetts, you can charge any rate of interest you want, so long as you register with the

state first. And, if you charged over X% without registering, it was a crime. That's our usury law.

The idea was that they did not want to interfere with "legitimate" business people, only with loan sharks.

Little did they know that, one day, no one would be able to tell the difference.

[DJ13]

22. Isnt the unregulated free market great?

[Mithreal]

23. U betcha!

[No Elephants]

30. Unregulated market, yet a bazillion bureaucrats in every state and in D.C. on the public payroll.

Worst of both worlds. Yippee!

Oh, well, I guess it's good they have jobs.

[treestar]

25. No one should want this product

Just don't pay the debt. By the time a creditor goes to court and gets a judgment and tries to collect it - whatever happens, it's less expensive.

[Rozlee]

36. Oh, no way! Have you ever heard of Credit Acceptance Corporation?

My step son got a car through CAC. He was just working at his first job and in college and had no credit so he got one of those "Your job is your credit." "No one turned away!" Well, the devil is in the details. If he was a day late, they'd assess a whopping service charge of---over 100.00! His loan was 6,000.00 for 5 years, but whenever we looked at his balance it kept increasing. He was getting all these "charges." After four years, the balance was at 5,800.00! He got the car voluntarily repoed, but the charges kept going higher. He was lucky. He had parents that could afford an attorney. Because they wanted $9,000.00 for a $2,700 car. Google "LemonAid Washingon City Paper" and the most appalling article you will ever read will come up on those Easy Credit car companies. Because those companies aren't selling you cars. They're selling financials. They win by charging extortionist fees for cheap vehicles, and if people can't afford them and the increasing "charges", they take them to court, knowing that these people are for the most part too poor to have a lawyer. It's sickening.

[treestar]

43. Well that's true, if it is a secured debt, the creditor will be able to take the

security.

But unsecured debt collection is hard. The debtor often has nothing to seize.

Did you get them in court? Something sounds wrong with that whole operation.

[TheMadMonk]

26. Actually I can see the merit to these, with certain caveats...

...that are not to onerous to the bank.

• A generous interest free period. (45-60 days)
  
• A cap on total interest on unpaid accounts. (150-200% of credit limit)
  
• A reduction in interest rate with each responsible payment. (0.5%/month for meeting minimum payments; 1% for maintaining a zero balance for 1 month, or for paying down at least 20% of principle; 1.5% for paying down 50% of principle; 2% for payment in full, including inside interest free period.)

[Q3JR4]

27. Damn. Way to shoot yourself in the foot, cc company.

It's all right though, screw 'em.

Q3JR4.

[JDPriestly]

28. Sometimes I think the MAFIA bought the banks.

Anyway, the banks act like the MAFIA used to.

[salguine]

31. This is way past legislation. These people need their heads stuck on pikes.

[naaman fletcher]

32. I'm ok with this as long as there are no hidden charges.

The real crime is the promise of a low interest rate designed to screw you with charges and then a default rate if you default on some other obligation. At least if they are upfront about it consumers know what they are paying.

[earcandle]

33. that is criminal isn't it? we used to have consumer protection laws, where are they now?

[jmowreader]

37. They still exist UNLESS you're dealing with a credit card company

National banks who issue credit cards are allowed to charge up to the usury rate of the state in which they are chartered--which is why South Dakota and Delaware, the two states without usury rates, are the twin homes of the credit card industry.

[Jefferson23]

34. In his day, Tony Soprano was offering interest rates more fair than this, I am sure.

So the customers first born is not too far behind...free market babies!

[Mopar151]

38. Tony Soprano's game has changed

Now that kidneys are worth $35,000 on the open market.

[jmowreader]

39. Now you see what the problem with America's banking system is

The fact that a bank is willing to loan money at eighty percent APR isn't really the noteworthy thing here. It seems like it is, it seems like it really should be, but it is not.

The really noteworthy thing is the Financial Division of the More Balls than Brains Club has members who are insane enough to risk their bank's money to this extent. There are essentially two reasons to loan money at this rate: your bank belongs to one of the Five Families, or you KNOW you ain't gonna see that money again. Whatever happened to denying loans to people whose credit is this bad?

[salguine]

41. The chief error I see in your theory of the "More Balls than Brains Club" is the

assertion that the risks are being taken out of insanity. I don't think this is the case at all...I think the risks are being taken because it's profitable for these bankers to take these outrageous risks. As we've seen, there's not only reward for taking insane risk, there's reward for catastrophic failure. These banking executives can literally bring down the global economy with their recklessness, and still walk away with huge personal profits and staggering bonuses, even though they've destroyed everything they've touched. Call it what you will, it's not insane, because to them it IS no risk. What it really is is a complete lack of any kind of morals or shame or conscience whatsoever, but it's not insane.

[jmowreader]

42. Certainly it's profitable to take risks like this...

It's also potentially highly profitable to buy C-grade and D-grade bonds, pink sheet stocks and CDOs built out of subprime MBS, but if you play in that market it needs to be a REAL small part of your portfolio. Where the investment fiends are fuckin' up is they're making this speculative shit either the majority or the entirety of their investments.