Record-Breaking Subprime Credit Card Interest Rate Raises Debate

By , CardRatings contributor
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Record-Breaking Subprime Credit Card Interest Rate Raises Debate

Subprime credit cards often charge steep annual fees and service charges in exchange for providing accounts to borrowers with bad credit. However, with new banking regulations capping account charges to a maximum of 25% of a card's credit limit, some lenders have devised creative solutions to maintain high fees on poor credit accounts.

Sioux Falls-based lender First Premier Bank has launched a pilot marketing program for a subprime credit card with a 79.9% interest rate. That rate results in about $20 in interest charges per month on an account with a $300 balance. However, those interest fees could potentially be less costly for consumers than the company's previous subprime credit card products, many of which required setup and maintenance fees of over $250.

A First Premier Bank spokesperson told reporters that the high interest rate reflects the higher degree of risk for the bank, much in the same way that Americans with poor driving records must pay higher auto insurance premiums. The new credit card offering has fueled speculation that lawmakers may pursue a national cap on interest rates in 2010.

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