by Joseph Kenny | 12/24/09

The Credit CARD Act that will take effect in February 2009 does not limit the amount of interest that can be charged on credit cards. What is does though is limit when interest rates can be charged. That has led to many of the largest credit card companies raising rates now so they don’t get locked in to low rates after the new law takes effect.

Consumers trying to rebuild their debt are often in a position where they have lost all their credit cards due to late payments. One way to re-establish credit is to obtain a new credit card and then make timely payments. The payments can be reported to a credit bureau to improve a damaged credit rating.

One of the credit card companies that caters to consumers trying to rebuild credit is First Premier Bank. Called a subprime credit card provider, First Premier offers credit cards to consumers with less than perfect credit.  The company issues the credit card and then reports payments each month for a year to a credit bureau.

Recently First Premier Bank sent shock waves through the industry by establishing a 79.9% average percentage rate (APR). This is not a misprint either. The  credit card company is trying to get ahead of the new federal law going into effect this coming February. Since the company deals with consumers who have had payment problems in the past, it wants to insure it is able to maintain its rates and fees after the Credit CARD Act takes effect.

Though the new regulations are meant to prevent just these kinds of actions, credit card companies are worried about loss of revenue beginning February. First Premier currently charges $256 in fees for the first year for a credit card with a low credit line. In fact the fees are higher than the credit line in many cases. Fees of $256 are charged for a credit line of $250.

After the new law takes effect the fees will be limited to 25 percent of the credit card balance. That means First Premier could only charge $62.50 for the same card.  So in anticipation of the new law, the company recently sent out a notice offering a $300 credit line for $75 in annual fees and a 79.9% interest rate. Previously the interest rate was at 9%. When using this card, if a person charges $300 he or she will pay $20 in interest payments.

First Premier Bank actually offers the credit cards through Premier Bankcard. The company deals mostly with people with poor credit and so it believes they are justified charging this kind of exorbitant interest rate. Current cards issued are not changing…yet. The company currently has 3.5 million customers.

First Premier says the credit card with 79.9% is still being market tested meaning the card terms could change. But even if the high interest rate is not maintained, there will be a credit card interest rate increase of some kind. The aim will be to offset the loss of revenue expected as a result of the implementation of the new law regulating the credit card industry.

As the time draws near for the new law to take effect, consumers need to be attentive to any notices they receive concerning their credit cards.  Most people will likely see their credit card interest rates and fees go up between now and February.