December 31st, 2009
79.9% interest rate hike?!
First Premier Bank’s, a subprime credit card issuer, latest 79.9% interest rate hike has likely set a record as the most exorbitant interest rate ever in the credit card industry.
It isn’t out of the norm for issuers to be enforcing rate hikes and new fees; it has become a normalized practice in the industry since the CARD Act was passed last May. In order to recoup projected losses anticipated in the upcoming credit card reforms, most major issuers, from Bank of America to Citibank, have used the last few months to change cardholders’ terms and conditions; interest rates have doubled to 29.95% up from the average 13-15%, credit limits have been cut without warning, as well as older accounts being closed without reason.
Why the steep hike from First Premier Bank? In an effort to comply with the CARD Act’s stipulation that card fees cannot exceed 25% of a card’s credit line, First Premier lowered its card from the usual $256 minimum in fees for the first year for a credit line of $250, to a $75 fee for a credit line of $300. As a result, the interest rate shot up from 9.9% to 79.9%. First Premier said the 79.9% APR offer is a test for new customers and may or may not affect existing customers.
This latest rate increase by First Premier Bank is not only excessive, but it may actually prove effective. First Premier Bank, as a subprime issuer, targets people with poor credit who aren’t typically approved by other credit card companies and aren’t left with many other options. In a statement to the press, First Premier noted that it needed to “price our product based on the risk associated with this market”.
Additionally, the revamped terms might also come with new credit standards. First Premier might be moving away from its historical base of consumers with less-than-perfect credit. Synovate, a research firm that tracks credit card mailings, reports that typically 91% of First Premier’s mail offers are sent to subprime households with credit scores below 700; in the third quarter, the bank sent 84% of its offers to subprime households. This decrease indicates that First Premier may be cleaning up its credit card portfolio and tightening its credit standards to target people with healthier credit; subprime borrowers have a propensity to default and pose a risk to overall profitability.
Keep up with more credit card news and updates on our Wednesday roundup!
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
Wow! That picture of the mouse trap in this post is crazy! Almost as crazy as an 80% intrest rate hike.
When going through this blog most of the people who is holding card will be very much scared because the interest rate goes up to like 80%. Everyone will be thinking of giving up there card as they might not able to maintain the interest rate..
I think evryone who has one of the cards from Premier should cut it in half and close their account. Those who want to build their credit should shop around there is a lot of competition out there.
consumers have been stomped on enough. The lower credit scores occur for many reasons sometimes at no fault to anyone; but layoffs, job freezes, wage freezes increasing cost for gas and food plays a big part. This country is going through the worst storm of its life; why would anyone be willing to pay that kind of interest when the return is
minimal. FOR GET ABOUT IT.