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Tuesday
Feb082011

Credit Card Interest Rates Gone Wild

Photo Courtesy - Getty Images(NEW YORK) -- Consumers may be feeling more confident to spend, and credit card companies are taking notice. First Premier Bancard in South Dakota got plenty of takers for a credit card with a 79.99-percent interest rate, aimed at people with poor credit.

Although the credit card had a sky-high interest rate, the company said 700,000 people signed up, according to the Credit Union Times. The average interest rate for a credit card plan was 13.78 percent in 2010, according to data released by the Federal Reserve this week.

"Consumers had been paying down their credit cards or consolidating their debt. But they appear to be feeling more confident and charging once again," said Jeff Kleintop, Chief Market Strategist for LPL Financial.

The Federal Reserve reported that U.S. consumer borrowing rose in December for the third consecutive month. Credit card usage increased in December for the first time since August 2008.

"In general, there isn't much credit available to high-risk borrowers and what is available is expensive for obvious reasons," said Kleintop. Banks charge higher rates for high-risk customers who may not be able to pay back their debt.

The bank has since decreased the APR to 59.9 percent. Chi Chi Wu, staff attorney with the National Consumer Law Center, said the 79 percent and 59 percent APRs are the highest rates she can recall seeing.

And while the credit card's interest rate decreased, the number of fees it has did not, according to Wu, an expert on subprime credit cards. Wu said First Premier Bancard is "notorious" for being a "fee-harvester" credit card company, in which high fees eat up most of an already low credit limit, leaving a customer with little useable credit.

Wu said there have been cases of enforcement actions against some high-interest fee-harvester companies since the late 90s. Then President Obama signed the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, of 2009. That law regulated how credit card companies marketed their products, including a 25-percent cap on credit card fees.

But interest rates like 59.9 percent are allowed under the CARD Act, as long as it's not done retroactively. Wu said as long as they have a 25-percent cap on credit card fees, the high-interest rate cards are "perfectly legal."

Consider, however, that carrying a $1,000 balance on a card with a 59-percent APR and making the minimum payment of two percent means it will take 50 years to pay off the balance. Oh, and the interest charges along the way will be a cool $86,500,932,454. But if you pay three percent of the balance, that would knock the interest down to $231,468,110.

Copyright 2011 ABC News Radio 







ABC News Radio