Bankruptcy

Eighty Percent Interest on a Credit Card

By Chris Kramer

The Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act of 2009, which will take full effect in February, limits many practices now common in the credit card industry. Some, however?like issuing a card with an interest rate near 80 percent?will still be permissible under the new law.

Subprime Credit: Still a Bad Idea

The subprime lending boom and the ?unconventional? lending techniques that accompanied it were major factors in the housing market?s explosion and collapse, and thus the current recession.

But just because people have grown more wary about some types of subprime lending doesn?t mean it?s disappeared entirely. In fact, according to an MSNBC article, some of the worst credit cards on the market are still as costly as ever.

The First Premier credit card reportedly provides a source of credit for people with limited or shaky credit histories ? that is, the so-called subprime borrowers. But, because of the potentially high risks associated with having a blemished credit history, this card comes with some shockingly expensive terms:

• Initial limit of $300: Users of the First Premier card will have access to only $300 in credit when they open their accounts, an increase from the card?s former limit of $250. But that?s not even as much as it seems.
• Maximum permissible fees: The Credit CARD Act prohibits issuers from charging fees that total more than 25 percent of a card?s limit, and the First Premier charges exactly that: $75 in fees each year. Formerly, the first year?s fees totaled $256 ? on a $250 limit.
• Astronomical interest rate: Presumably to make up funds lost from the limited fees, the First Premier issuers jacked up the interest rate on their card to a whopping 79.9 percent. The new law sets no limit on credit card interest rates, so while shockingly high, this limit is legal.

Avoid the Trap: Wait It Out

Naturally, getting tangled up with a card that carries a nearly 80 percent interest rate is not a good idea, no matter how badly you want to start rebuilding your credit after a bankruptcy filing or other financial stumbling block.

If you currently have a rough or limited credit history and don?t think you?ll qualify for a credit card with more favorable terms, your best bet may be to simply wait a while. With a few months or years of responsible and timely bill paying, you may qualify for much better credit products.

Additional Resources

Credit CARD Act of 2009 (PDF)

Full post as published by The Bankruptcy Blog on December 27, 2009 (boomark / email).