As soon as word got out, it didn’t take long for lawmakers to seize upon the highest credit card rate around — an offer being tested by First Premier Bank, a subprime card issuer, with a mind-boggling APR of 79.99 percent.
Moreover, much to the disdain of House Democrats pushing for a rate cap, the action by First Premier takes advantage of an apparently unforeseen loophole in credit card reform laws set to take full effect in February.
The First Premier card normally offers a minimum of $256 in fees for the first year for a credit line of $250. When the Credit CARD Act of 2009 becomes enforceable Feb. 22, the cap on such fees will be 25 percent of a card’s credit line. In recently mailed notices for its pre-approved card, First Premier offers a fee matching that same limit – $75 in the first year for a credit line of $300.
Along with the fee, a 79.99 percent interest rate is offered.
Reform laws do not set caps on interest rates. It only places restrictions on when and how rates should be imposed, but no limits.
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First Premier has said that the offer is being tested, and does not know if it will be continued. First Premier said it needed to “price our product based on the risk associated with this market” in a statement to the Associated Press.
Rep. Dennis Cardoza, D-California, today lashed out at First Premier’s card offer in a letter to Pres. Barack Obama and California Senators Barbara Boxer and Dianne Feinstein.
Cardoza is asking them to support a bill sponsored by Rep. Louise Slaughter, D-New York, chairwoman of the House Committee on Rules. Slaughter and Rep. John Tierney, D-Massachusetts, that would cap credit card interest rates at 16 percent, and penalty fees at $15.
“First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry,” Cardoza said. “It’s a strategy other subprime card issuers could start adopting to get around the new rules.”
First Premier’s website says that credit cards are serviced by Premier Bankcard. The company, based in Sioux Falls, South Dakota, says Premier Bankcard is the 10th largest issuer of MasterCard and Visa cards in the country, with more than 3.5 million customers.
“Our representatives have done a lot to take care of Wall Street, how about doing something to help real people. Almost everyone has a horror story regarding credit card companies, and it’s time to protect consumers from this immoral and predatory industry,” wrote Cardoza.
Under the bill introduced by Slaughter and Tierney, the Truth in Lending Act would be amended to create a “National Consumer Usury Rate,” which provides that the annual percentage rate (APR) “for an extension of credit or outstanding balance on any credit card account may not exceed 16 percent.”
The bill allows the Federal Reserve to make adjustments to the maximum APR in the cap when it is “in the public interest and economic conditions warrant.”