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Credit card APRs surge on First Premier card change

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Interest rates on new credit card offers surged higher this week, after First Premier adjusted the rate for one of its cards.

CreditCards.com's Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 14.69%
14.37%
14.38%
Low interest 11.93%
11.93% 12.11%
Cash back  12.70%
12.70%
12.57%
Balance transfer 12.83%
12.83%
12.75%
Business 13.05%
13.05%
12.96%
Reward  14.29%
14.28%
14.47%
Airline 14.45%
14.45%
14.43%
Student
14.49%
14.49%
13.77%
Instant approval 16.49%
16.49%
18.41%
Bad credit 24.64%
21.04%
20.32%
Methodology: The national average credit card APR is comprised of about 100 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)
Source: CreditCards.com
Updated: 10-27-2010

The national average annual percentage rate (APR) for new cards leapt to 14.69 percent, according to the CreditCards.com Weekly Credit Card Rate Report. That's the highest national average since early April and the second highest level on record since CreditCards.com began tracking APRs in 2007.   

This week, APRs were boosted by First Premier bank, which began charging a 59.9 percent APR for all Centennial Classic credit card applicants. Previously, that card offered both a 23.9 percent and 59.9 percent rate to its new cardholders. 

First Premier didn't provide comment on the change, but consumer advocates say the adjustment is likely an effort to make up for the bank's potential loss of fee revenues under newly proposed Credit CARD Act rules. Last week, the Fed recommended rules that would count application or "processing" fees toward the total fee costs that can be assessed to cardholders.

Under the CARD Act, fees charged during the first year an account is open cannot total more than 25 percent of the card's credit limit. Since the law was enacted, however, some banks started charging an application or processing fee before the account is opened. They argue that since the credit card account is not yet open, that processing fee doesn't count toward the 25 percent cap.  

Critics say those issuers are attempting to skirt the CARD Act's existing regulations, and with its proposed rule, the Fed agreed. First Premier's "upfront 'processing and application' fee model, for which it was attempting to find a loophole under the CARD Act, did not work," says Linda Sherry, national priorities director for the nonprofit Consumer Action. "The Fed's last proposed rulemaking under the CARD Act, out last week, is going to close this loophole. So they are probably trying to make up for that lost revenue," Sherry says.

Such bank adjustments mean new cardholders can expect to pay more for carrying a balance. For example, a typical cardholder who borrowed $5,000 on a credit card today and consistently paid $150 per month at today's average interest rate would have to pay $6,386 to pay off the debt. That's $231 more than would have been required on Jan. 1, 2010, when the national average APR for new card offers was 12.97 percent. (Calculator: How long will it take to pay off your credit card balance?)

Cardholders with bad credit pay an unusually steep cost. While First Premier has come under fire before for high rates -- including a 79.9 percent tester offer -- cardholders with good or excellent credit can find lower rates elsewhere. But for those borrowers whose options are limited by poor credit, consumer advocates offer a warning against the Centennial Card. 

"Stay away -- far away!" Consumer Action's Sherry says in an e-mail. "Look for a secured card and put the money down as a deposit for a small line of credit rather than nonrefundable fees and one of the highest credit card interest rates known to man," Sherry says. "This is why we need a national usury cap on credit card rates." 

See related: Credit card reform arrives in the form of the Credit CARD ActFed moves to close credit card application fee loophole, Issuer of 79.9% interest rate credit card defends its product, Calculator: How long will it take to pay off your credit card balance?Credit card rates: interactive graphic on APR changes

Published: October 27, 2010


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