Remember four years ago when the Obama-backed CARD Act was signed into law? Consumers around the country rejoiced even as banks and credit card companies could be heard giving out a collective grumble, knowing their jig was up and they were about to be forced to play by new rules. It was a victory and then the victory became even sweeter when the Consumer Financial Protection Bureau was formed as a result of that law. Since then, we’ve seen a number of repercussions – both good and bad – from these new laws.
No More Sky High Fees?
First, we saw many of the nation’s biggest banks try to offset some of their losses, since they were no longer allowed to charge sky-high fees, raise interest on consumer credit cards at will and squeak past their ethical responsibilities with difficult to read small print found in the terms and conditions, by putting into place new fees like $5 debit card usage fees. Then we saw some of the bank CEOs throw their tantrums in front of Congress. You may recall a few of those epic meltdowns.
And we also saw CFPB step up to the plate and show just how powerful it would be as a consumer watchdog group. Within a couple of years and over a few months time, it managed to right the wrongs from three of the world’s most recognized credit card names. Righting those wrongs meant multi-million dollar refunds for millions of consumers. Indeed, it’s been a slow dance, but what a glorious one it’s been.
Ah, but there were also more than a few glitches. One of those glitches, somehow, were allowed to stand. There was one credit card company that insisted it was right and should be allowed to put into place pre account opening fees. That credit card company/bank was First Premier. It’s best known for its subprime financial products. And frankly, it’s done a lot of good for many consumers who needed a break so that they could begin repairing their credit histories. First Premier took chances on those consumers and often, it was a winning solution for both parties. But it cost consumers a lot of dough to own those products.
It felt strongly enough about its fee structures that it took its fight to the legal system. And it won. And when it won, other credit card issuers won as well. Here’s what happened:
Fighting the Government
When it filed its lawsuit, it knew it was going up against, basically, the Federal Reserve and the entire American legal system. After all, it was trying to bypass those new laws and said it could justify its reasoning. If you’re a credit card consumer that has a First Premier credit card, odds are, you paid a $95 (or more) processing fee as part of the approval process. And, you might have done this knowing your opening credit line would be quite low – possibly as low as $200. Odds are, you knew that your less than perfect credit score was the reason your choices were limited and like millions of other consumers, you wanted the opportunity to improve those scores and you knew it would cost.
After the new laws went into effect, it basically changed that for subprime credit card issuers. In fact, according to the original language, no one could charge any kind of upfront fees. When the bank sued and won, CFPB had to essentially edit it and in doing so, it provided a bit of explanation as to what happened. It explained that the lawsuit was filed because some banks wanted to continue to charge those initial fees, which by the way, consumers didn’t pay until and unless they had been approved for a credit card. The 2009 Credit CARD Act severely limited the fees charged during the first year after the account is opened to 25 percent of the account’s initial credit limit. So, for a credit card with a $200 credit line, a bank or credit card issuer couldn’t charge more than $50 during those first twelve months.
Credit card companies, including First Premier, can continue charging $95 processing fees – or any other amount it chooses – before allowing a consumer to use its credit cards, regardless of what the credit line is.
CFPB Makes its Announcement
This past week, once the legalities and details were worked out, CFPB offered a statement that read, in part,
Many members of the public opposed the…rule, arguing that amending…would reduce protections for vulnerable consumers…The Bureau takes seriously the concerns…that the rule may have on vulnerable consumers. The Bureau believes, however, that the final rule is necessary to resolve the uncertainty created by the South Dakota litigation…
Fortunately, though, there are credit card offers that don’t require hefty up front fees. Many are secured credit cards and are most often recommended for those looking to improve their credit scores. Basically, a secured credit card is opened by a bank or credit card company when the consumer provides collateral in the form of a cash deposit that’s held in a savings account. The credit card account is then opened usually matching the deposit, although some may extend the credit line further than the deposit. When the consumer uses the credit card from there, his payment activities and habits are reported to the three credit bureaus. If the consumer defaults, that too is reported and the savings account is used to settle any unpaid balance. Often, credit card companies will allow the credit card to transition into a more traditional, unsecured account once the consumer has shown the ability to pay the statements every month.
National Express Secured Visa
This is one of the newer offers on the market today. There are a lot of great reasons why we would recommend this one for consideration. First, we like the fixed 9.99% APR. Even if a late payment is made, it won’t affect your interest rate; however, you need to know that a late payment can affect your efforts of improving your credit scores. Your credit line is determined by your security deposit and this bank reports to all three credit bureaus. There are no credit checks, either. There is, however, a $50 annual fee, but there are no upfront fees. You’ll enjoy all the benefits that come with the Visa name, including around the clock customer service and fraud liability.
Continental Finance Matrix Discover
Another Discover product, this secured credit card offer has no application fees and it too reports to all three bureaus. There is, however, a monthly maintenance fee. It’s billed annually and feels more like an annual fee, except for the fact that there is indeed a different annual fee of $75. That’s on top of the $144 monthly maintenance fee that’s also tacked on each year at the same time. The interest rate on this credit card offer is higher, coming in at 29.99%. You have the Discover logo to protect you with all of its fraud protection tools.
First Progress Platinum Select Mastercard
Another popular secured credit card offer, the First Progress Mastercard has a lower variable APR of 14.74%. Its $39 annual fee is competitive, as well. Cash advances will cost 20.74% APR along with a 3% cash advance fee, with a 10% minimum. You’ll need to make a minimum of $200 for your deposit since that’s the minimum credit limit it imposes. There are no credit checks either and all three bureaus receive monthly reports on your credit habits. It’s a competitive card and worth your consideration.
Finally, in the effort of full disclosure, it’s important to remember that all of these credit card offers are solid choices, the First Premier credit card, at least as discussed above, is not a secured account. It’s a traditional credit card and the issuer is simply looking to cover its own bases because it’s designed for those with past credit problems.