As many Americans work to re-establish themselves and their credit histories, many are discovering the pitfalls that sometimes are a part of those efforts. New fees and guidelines, courtesy of the 2009 Credit Act, which was put into place to protect consumers, have simply shifted when and where fees are charged. They’re legal – but for those with less than ideal credit, legal is not always synonymous with fair.
An Unexpected Realization
First Premier Bank, the one responsible for the 79.9% interest rate, says it has to evolve in order to remain profitable and because the latest federal guidelines limit it in terms of what it’s allowed to charge, it had to make up those losses somewhere. Those losses are being heaped onto those most vulnerable.
A 58 year old Texas woman, Toni Riss, opened her credit card statement to discover she is one of the many Americans who got hit with those extraordinary fees. She says an automobile accident is what set the wheels in motion that eventually put her in the position of having to rebuild her credit rating. She filed bankruptcy due to all of the medical bills associated with that accident and once she did, she realized just how long the bankruptcy would haunt her.
Initially, she accepted a credit card offer from Premier Bank with an interest rate of 29.9%. Stating she knew it was high, she also recognized it was just part of a new reality when a bankruptcy is filed. Six months after receiving the card, using it occasionally and always making her payments on time, she said, “I about had a heart attack when I got a disclosure notice saying my starting rate of 29.9% was going up to 79.9%”. She calls it highway robbery. First Premier denies raising her rate and said when the rate was launched with its new product, it wasn’t applicable to any current customers and certainly none who were not in arrears.
There’s a Market
As it turns out, this high rate isn’t a deal breaker for many consumers. Premier Bank says customers weren’t swayed by the rate; however, the bank’s CEO Miles Beacom admits many customers defaulted. He said that realization is what prompted the bank to drop the rate to 59.9% and said since then, its shown the “best performance” and is where is bank can successfully “market the product” its offerings. And marketing efforts are good, apparently. Close to 700,000 folks have applied for the card, even with a 59.9% interest rate.
As mentioned, this practice is absolutely legal. Some are using payday loans, which historically charge close to 450% or even 500% annually, to justify the rising credit card interest rates. They also say check cashing companies have an alternative credit card companies don’t have: when a customer defaults and the check doesn’t clear the bank, payday companies can seek remedies in criminal court in some cases. This is not an option not available for credit card companies.
Higher Risks for Both Lender and Consumer
This begs the question: how far are people with struggling credit scores willing to go? Especially considering the fact the interest rate is extraordinarily high, those higher risk individuals who are approved for credit cards discover many fees, all spelled out in tiny print in the disclosures and all in place to lessen the risk to lenders.
Everything from application fees, annual fees, monthly service fees, transfer fees and new (higher) cash advance fees can appear on your monthly statement when you least expect it. In a recent post, we discussed the importance of checking your monthly statements each month and it’s for these reasons it’s always wise to do so.
For now, the Texas woman who discovered the 79.9% APR rate says she’s paid her account in full and closed it, though she said it took close to six months and even then, she was turned over to a collection agency. She has been able, however, to find a credit card for bad credit with more acceptable interest rates and says she’s looking forward to seeing it drop even further as she continues to work on rebuilding her credit rating that took a hit because of a car accident that was not even her fault.