Tuesday, February 8, 2011

Behold the 79.9% APR Credit Card

I originally read this story about the 79.9% APR credit card, wondering what suckers would actually use such a card.  Then I realize the American people have figured out the system as currently structured.  Those who run up debt (helping GDP surge, and the 70% of the American economy hum) and then walk away from the debt are modern society's winners.  [Jun 15, 2010: WSJ - Default, not Thrift Pares U.S. Debt] They've learned the past few years how losing a few hundred points in FICO score for a few years is just a short term impediment.  When 1 in 10 home "owners" in the country can live in homes for 2 years without paying the mortgage, and save tens of thousands of dollars they can then use to "shop".... who are we to judge those who just run up a few thousand on their 79.9% card?  Indeed, I don't believe they are fulfilling their full potential in the "debt is just a figure on a piece of paper" culture we are creating.

  • ....about six months after opening the card -- at the end of 2009 -- she received an unwelcome surprise in the mail.  "I about had a heart attack when I got a disclosure notice saying that my starting rate of 29.9% was going up to 79.9%," said Riss. "It was ludicrous. Talk about a highway robbery."
  • At that same time, First Premier Bank launched a new credit card with the sky-high 79.9% rateThe card proved popular with consumers, said First Premier Bankcard CEO Miles Beacom, but the performance was bad: "A lot of the people ran up the card, defaulted and went directly to charge off."
The lab rates of America have learned to game the system after much training.  Paying debt obligations is for the remaining suckers! (hand raised)  I'll give you 170 FICO points in return for the goodies I do so deserve.  Hey, if the banks can do it - I can do it!  Then in 2 years you'll give me a new card.  We all win here. 

Unfortunately there are still some suckers remaining in the system, who believe they need to pay back debt.  Indeed Frontier Bank went to 59.9% and actually has some who carry a balance.  Some proportion even (don't snicker) send money to the bank in return for their charged goodies.
  • As a result, they dropped the rate to 59.9%.  Since then, nearly 700,000 people have signed up for the card -- and more than half of them carry a monthly balance.  
  • And yes, that rate is completely legal. The Card Act, which was passed in late 2009 to protect consumers from predatory lenders, only prevents issuers from raising rates retroactively. Credit card issuers are free to charge whatever rate they want at the front end.
Some amazing statistics, 3M people is 1% of the entire U.S. population, including babies.
  • The company said it serves nearly 3 million customers nationwide and receives anywhere from 200,000 to 300,000 applications a month.

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