Though the credit card company would never tell you that the subprime cards are called fee-harvesting cards, the name is appropriate. These are the credit cards offered to people who have credit problems like low credit scores. They are loaded with fees of all types, and there is even a fee to get one of these cards.
Though the fees are high, they do serve a purpose which is why there is a market for them. People with credit problems have trouble getting credit cards and these types of credit card accounts are good for building credit as long as payments are made on time.
With the passage of the new Credit CARD Act, consumers can expect to see some changes to the subprime card account conditions. For examples, interest rates are expected to go up, and in many cases they already have increased. There are also companies issuing these cards that have already changed the interest rates from fixed to variable. In fact, there will probably be all kinds of new fees showing up on all credit cards and not just subprime cards.
The problem is that the fee-harvesting cards already have high rates of interest and fees so increases make the cards even more expensive to hold. The National Foundation for Credit Counseling is not happy with the increasing fees. As a spokesman so aptly point out, people using these cards are often people who have trouble managing their debt. Adding more fees to the cards only makes the situation worse.
There are some requirements of the new law that will benefit the subprime card holders. For example, the fees to obtain the card cannot exceed 25 percent of the approved limit during the first year. There is a catch though. The fees can be assessed at 50 percent of the approved credit limit but must be spread out over at least five billing cycles.
The subprime credit card companies are bracing for a lower level of business in 2010. In fact, First Premier says it expects the number of new monthly accounts to drop from 200,000 to 20,000.
The new law requires credit card companies to be more honest about how they describe their interest rates and fees. Full disclosure in understandable language is required. For example, instead of saying the interest rate is 10% and the fees are $147, the company must say they charge 75 percent interest the first year.
The Credit CARD Act rules are going to probably result in some subprime card companies going out of business. Though the cards do not have the most desirable fees, they do serve a particular market that needs the service. People who use these types of cards often do so just to rebuild credit. Once the credit score is restored, the consumer can drop the card and get another that is not subprime.
During 2010 there will be a lot of changes in the credit card industry. The full impact will not be known for many months.
Similar Posts:
- 100% Financing Bad Credit Mortgages – Which Loan Can You Qualify For With Poor Credit?
- Understanding Credit Card Rates and Fees
- Consumers Prepare for Credit CARD Act
- New government proposals could help consumers with credit card debt
- Pre-approved credit offers dwindling fast
Recent Comments