CARD Act Kills ‘America’s Worst Credit Card’

NEW YORK (MainStreet) — The worst credit card in America is dead.

Subprime lender First Premier Bank announced earlier this week it was nixing its 59.9% APR Master Card.

And what killed the card was the CARD Act.

“It’s ironic, because the card came into existence because of the CARD Act,” Tim Chen, CEO of credit card ranking site NerdWallet.com, tells MainStreet. He explains that when the card was introduced by First Premier Bank in 2007, it touted a 9.9% APR, but also came with a minimum of $256 in first-year fees for a credit line of $250.

These fees went on to become illegal, thanks to the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which says issuers can’t charge more than 25% of a card’s credit limit. Back in December, First Premier Bank lowered the card’s fees to $75 in the first year for a credit line of $300 while jacking up its interest rate to 79.9%.

As too many holders ran up the card, defaulting then going straight to charge-offs, the bank lowered the card’s APR to 59.9%, but the problem still persisted, leading First Premier to pull the plug on the card earlier this week. 

Under the CARD Act, high interest rates are permitted, but issuers are required to formally notify consumers 45 days in advance of a rate increase. Chen explained that this transparency makes cards with astronomical APRs popular with only a certain type of audience –the un-creditworthy who really have no business owning a card to begin with. 

While a higher APR – or the cardholders it attracts – can make it hard for issuers to make any money off the card in question, Chen doesn’t feel that more issuers will lower their APRs because the First Premier Bank card was so extreme. 

“There’s nothing out there right now that’s really comparable to it,” he says, before adding that while other issuers did preemptively raise their interest rates in anticipation of the CARD Act, most cards on the high end of the credit spectrum carry an APR of about 30%. “The default levels have come down enough where banks can probably afford to take down their APRs, but it remains to be seen what is actually going to happen.” 

The death of the 59.9% card represents another victory in a big week for the CARD Act. Earlier this week, a new study from consumer advocacy group Center for Responsible Investing found the greater transparency caused by the CARD Act has led consumers to better manage their credit.

Chen says he does expect some issuers to swipe out some higher APR cards for secured cards, which requires customers to put down a sum of money upfront that will match their line of credit and minimize their default risks. It’s exactly what First Premier Bank did: The bank’s website is currently offering a secured credit card with a 19.9% interest rate. Based on its high fees, Chen cautions that “it’s not a very good card, either.”

What are some of the credit card options for Americans with little to no credit? Find out in MainStreet’s roundup of the best starter credit cards!

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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