Like I mentioned in my article yesterday, this week ushers in the new credit card laws. On Monday, the provisions of the Credit CARD Act of 2009 took effect, to the joy of consumers everywhere. Well, not all consumers. Confused? Don’t be. The new credit laws will increase the cost of credit for people with worse credit scores.
Welcome New Fees and Terms!
When the government closes a door, if any windows aren’t boarded up, they will be opened. In this case, expect to see credit cards for people with iffy credit come burdened with more and greater fees than those for folks with decent to good credit. Of course, the law has capped the amount of upfront fees that can be charged. That’s why credit card companies have started issuing cards with ridiculously high interest rates to the lowest of the subprime set- as high as 79.9%!
Does 79.9% violate usury laws? No, not in this case. In a time when the average variable credit card rate is 13.63%, 79.9% does stand out as an outlier. However, it’s likely that the high rates you now see are the calculated rates that companies need to overcome the cuts they will have to make for the new law. Before cursing the credit card companies as money grubbing or somehow immoral, note that the alternative is charging less, making less money (likely losing money), and having to drop credit issuance for the subprime corner of the credit card market. Also, if the subprime credit card borrower follows the rule, they can bypass the paying of these interest charges anyway.
The link notes that one credit card company, First Premier, is already feeling the heat from the laws. They have offered high rates from 39.9% – 59.9%, but are looking into increasing processing fees and cost cutting… such as layoffs. The terms of the law are already hurting some of the companies which offer credit to this corner of the market.
Of course, even though the old cards had better advertising points like low APRs, the new card terms are more representative of what it will cost to actually have the card. Upfront fees may look better than a 79.9% rate, but now the choice of the upfront fees is over.
Better? Worse? Do we want under 21 year olds and the subprime credit crowd getting cards easily? Thoughts?
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