Monday, February 15, 2010

Subprime Cards: 640 Equals 79.9

I don't know about you guys, but I cannot wait to get my own credit card with an APR of 79.9 percent.

Thanks to the recently passed CARD Act of 2009 [PDF Summary], credit-card lenders are scrambling for new ways to gouge generate credit lines for FICO-impaired borrowers.

Yahoo: Card Provider Defends 79.9% APR

Aw, heck. What's to defend? If the default risk dictates a rate that high, then you as parasite lender ought to be free to offer your product to whatever victims customers find it suitable to their needs.

"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.

For those trainwreck-gazers in the crowd, here's a PDF of the Fees & Limitations for First Premier's current (2010-02-13) online card offer. I mean, how sweet are these terms?

Initial Credit Limit: $300
APR for Purchases & Cash Advances: 23.9%
One-Time Processing Fee: $95
Annual Fee: $75
Add'l Card Fee: $29 per Card
Late Fee: $29 or $35
Credit Limit Increase Fee: 50% of Increase Granted
Internet Access Fee: $3.95 (One-Time Fee)
Autodraft Fee: $11 or $7

And there's a market for this.

[Says Miles Beacom, CEO of Premier Bankcard:] "From our initial research we know that 83 percent of the people who accepted the offer are fully aware of the interest rate they are receiving and the purpose of the credit card to help re-establish credit. If anyone accepts the offer and didn't fully understand it or no longer wants it they can take advantage of our full refund of fees policy."

That's mighty compassionate. Mother Teresa had nothing on these guys.

"There's 70 million people out there who have been identified with problem credit," says Beacom, adding those are people with FICO scores lower than 640. "These are people who have had problems with their credit in the past."

He likened people with bad credit to bad automobile drivers who must pay higher auto insurance premiums if they want to continue driving. "These are people who have had those same accidents or speeding tickets with their credit."

He adds: "It's going to be very difficult for these individuals to obtain credit after February."

I'm not sure that's a bad thing, given that "easy" apparently means bending over for a 79.9 percent APR.

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— Posted by Michael @ 8:33 AM


Roughly 309 million people in the US (, with approximately 27.5% under the age of 19 ( That leaves about 224 million adults. And 70 million is... 31% of that.


And now I don't know where I was going with that. I suppose I'm wondering what that number was over the course of the last decade or so, except that's not quite it.

Going to get a cup of coffee and ponder this.


Ohhh nice. I am scared to see what is going to happen!


All I can say is...we asked for it! We want a more stable system, so this is what it takes to extend credit to these people. I think they're serving a formerly unmet need that's only going to grow as credit gets tougher.

Let me ask this - if a friend asked you for $300 to buy an Xbox and a few games, would you do it? What if you know he has renegged on his debts before? What if he's a complete stranger and you know he's renegged on his debts before? the card companies have erred on the side of leniency (as far as extending credit) in the past b/c they've been able to make up for it with fees and interest rate hikes (often deviously hidden and implemented). Now, with more transparency, we're forcing them to price for the credit risk. This is a good thing - people can take it or leave it, and clearly some people still want to take it. That is our (consumers') punishment for those who used credit unwisely and unaccountably for long.


Ha! Sign me up for one of those! Maybe we can get a few referreal commissions if we start pushing these cards on our blogs!


In response, I would like to add, that my credit score is in the 600s and getting lower as I pay off and cancel one credit card after another. I have no late occurrences or defaults on anything in the past 5 years, but Ive grown sick of being in servitude to the lenders. At the same time I am learning to keep cash in reserve for the unexpected, and to live within my means. I'm sure there are times when having a high credit score would be preferable...Ill let you know when that happens.


I should be clear here that I personally have no problem with the gouge-your-eyes-out APR rates discussed here. As Greg says, Mama Government has mandated that much of the hidden, tricksy stuff that lenders got by on for so long now has to come out in the open.

Fine. So 79.9 APRs are what we get. As long as people know the terms going in, it's all good.

But what will inevitably occur, of course, is that now consumer advocacy groups will unleash their PR forces to decry the "predatory" nature of cards like this -- even though it's all out in the open and easy to find. How such rates are unfair to those borrowers who can least afford them.

My view: It ain't "unfair" if you can see it coming. It ain't "predatory" if you can take it or leave it.

Cue the outcry in 3 ... 2 ... 1 ...


You're right, Michael - that was my point too. You can't ask for transparency and then complain about unfair or predatory practices (unless there is a monopoly, which there isn't). I haven't heard yet whether anyone's actually "complaining" about the 79.9% rate (clearly those signing up for it aren't) - to me, I've read these reports as explaining how card companies are reacting to the legislation. We'll see if the stories start casting stones at the card companies or if rates that once seemed usurious are now deemed acceptable "as long as people know what they're getting into". If we start legislating transparent fees that are too high, customers with poor credit will have little access to money, which may or may not be a bad thing depending on where you stand on this issue.

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