Truth breaks out. Subprime cards charge 79.9%!

• December 20, 2009
• 2 comments
• Posted in Credit Cards, Latest Posts, Taxes

You’re finally hearing the truth about the incredible interest rates that banks charge for subprime credit cards. First Premier Bank, based in Sioux Falls, South Dakota, is pilot-testing a card with a rate of 79.9 percent! You might be shocked, shocked, to hear that a bank could charge that much. But to me, the bank is finally telling its subprime customers the truth. They’ve always been paying an effective 80 percent or so, due to the huge fees tacked onto the card. They just didn’t know it. The new federal credit card law is finally forcing all the subprime banks to confess.

Subprime cards are sold to people with poor credit. First Premier advertises its normal subprimes at an interest rate of just 9.9 percent. That sounds like a bargain but it’s definitely not. Users typically start out with a credit limit of $250 to $300. Over the first year, the bank adds a whopping $256 in fees. The bank’s new, 79.9 percent rate accurately reflects what consumers are actually paying for these crummy cards.

Starting on February 22, subprime cards will have to restrict their fees for opening accounts to 25 percent of the card’s credit line in the first year. To make the cards profitable, subprime banks will have to raise other fees, raise the interest rate or stop issuing cards to people they know will find it difficult to pay.  You’ll hear some whining that it’s not fair to prevent cash-strapped people from getting credit, but too much credit probably got them into trouble in the first place. If they see an interest rate of 79.9 percent, they might say, “are you kidding?” and find another way of paying bills. That’s a strike for sanity all around.

Tags: high interest cards, subprime credit cards

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