topic Re: Not Good - Consumer agency backs down on card fees in Credit in the News

Not Good - Consumer agency backs down on card fees

pipeguy — Fri, 13 Apr 2012 00:32:56 GMT

WASHINGTON — The Obama administration's consumer financial watchdog agency is backing off a plan to limit big upfront fees on credit cards, a move that could hit borrowers with poor credit histories especially hard.

The Consumer Financial Protection Bureau acknowledged Thursday that its proposal would increase costs for some cardholders and allow banks to charge more in fees.

...

First Premier Bank of Sioux Falls, S.D., had argued that the Fed overstepped when it proposed the tougher rule. The bank had started charging customers a $95 processing fee for credit cards before the account was opened, plus a $75 annual fee. Some cards had a credit limit of $300.

The upfront fee allowed First Premier and others to charge people fees totaling far more than 25 percent of their credit lines. The rule was an attempt to close that loophole.

http://www.msnbc.msn.com/id/47035205/ns/business-consumer_news/

Re: Not Good - Consumer agency backs down on card fees

pizzadude — Fri, 13 Apr 2012 02:33:31 GMT

Yeah, it is too bad ~ but even if they had been successful somehow I think First Preemie would still find a way to get around the law with new & creative fees like an energy surcharge or statement processing fee, blah, blah, blah....

Re: Not Good - Consumer agency backs down on card fees

Revelate — Fri, 13 Apr 2012 06:35:42 GMT

95+75=170.

So if 30% of their people basically run up $300 and then don't pay it, that may well be reasonable. At their strata, they're extending credit to some folks who do exactly that... and I know for one subprime lender I worked at, 30% default rate was a fact of life at one point.

Re: Not Good - Consumer agency backs down on card fees

pipeguy — Fri, 13 Apr 2012 10:41:36 GMT

Revelate wrote:
95+75=170.

So if 30% of their people basically run up $300 and then don't pay it, that may well be reasonable. At their strata, they're extending credit to some folks who do exactly that... and I know for one subprime lender I worked at, 30% default rate was a fact of life at one point.

Perhaps in that one case, however national default rates (MC/V/AE & Disc) including major sub-prime lender Capital One, are running less than 3% and no more than 5% for the 4th Qtr of 2011 and 1st Qtr of 2012 - nowhere near 30%. First Premier actually reined in their up front charges, they used to be much higher where a $300 CL had maybe $50 to $75 available credit after up front fees plus no grace period on 36% or more APR interest. I don't care how high the expected default rate is, that's just plain Mod Cut of their captive customer base.

Re: Not Good - Consumer agency backs down on card fees

Revelate — Fri, 13 Apr 2012 20:24:16 GMT

pipeguy wrote:
Revelate wrote:
95+75=170.

So if 30% of their people basically run up $300 and then don't pay it, that may well be reasonable. At their strata, they're extending credit to some folks who do exactly that... and I know for one subprime lender I worked at, 30% default rate was a fact of life at one point.
Perhaps in that one case, however national default rates (MC/V/AE & Disc) including major sub-prime lender Capital One, are running less than 3% and no more than 5% for the 4th Qtr of 2011 and 1st Qtr of 2012 - nowhere near 30%. First Premier actually reined in their up front charges, they used to be much higher where a $300 CL had maybe $50 to $75 available credit after up front fees plus no grace period on 36% or more APR interest. I don't care how high the expected default rate is, that's just plain Mod Cut of their captive customer base.

It just depends: I can assure you C1 isn't the bottom of the barrel as far as subprime lending goes... they wouldn't even touch me for an auto loan for example As stated, I've worked at a subprime lender who saw that default rate (it was actually higher) during one of their periods, I didn't just pull that percentage out of the wind.

There's a long way between any of these cards and their costs, vs. the Pay Day Loan places... and if you've ever done the math on those, they are way, way worse than anything FP has ever done. As a result, FP could start lending down towards that strata, vis a vis similar to places like Cashcall with their high APR's, but you compare this to the fees that some places charge, which result in 300%+ APR's, and there's still a lot to be said for those for people in those situations. Plus, FP (and even Cashcall) report to the bureaus, so if you *do* use them responsibly, that helps your credit reports and the resulting scores, and can get you out of the hole that some folks (including myself) wound up miring themselves in.

Re: Not Good - Consumer agency backs down on card fees

drkaje — Tue, 17 Apr 2012 17:12:22 GMT

@ Pipeguy,

How is it a captive customer base?

Re: Not Good - Consumer agency backs down on card fees

pipeguy — Wed, 18 Apr 2012 02:37:44 GMT

drkaje wrote:
@ Pipeguy,

How is it a captive customer base?

The "captive" customer base is those that must use a lender like First Premier to get any "credit card". I posted a link yesterday from American Banker that talks about the First Premier business model.

http://ficoforums.myfico.com/t5/Credit-in-the-News/Interesting-Look-at-First-Premier-MasterCard-Business-Model/m-p/1353791

From the article:

Thanks to the preliminary injunction, First Premier offers on the Internet three different unsecured cards that, for a $300 line, require a $95 "processing fee" paid before issuance, plus a $75 annual fee (25% of the credit line) for the first year, charged to the card, and a 36% APR. Hence, using the full line for one year you pay a total of $278, more than 90% of the line.

Why anyone would pay $278 in fees-interest for a $22 usable credit line is beyond me, but there seems to be a customer base that is so captive to their bad credit rating that they accept these terms over a secured card.

Re: Not Good - Consumer agency backs down on card fees

Dadaluma83 — Wed, 18 Apr 2012 15:15:35 GMT

I have no problem with fees charged by First Premier. The only people who would pay or go for a card like that are people who's credit has hit rock bottom and not even Cap 1 would touch them.

Sometimes you gotta just pull yourself up by your bootstraps and bite the bullet with FP for 6 months to a year until you can at least move on to something more reasonable to rebuild, like a secured card from Cap 1.

Re: Not Good - Consumer agency backs down on card fees

drkaje — Thu, 19 Apr 2012 00:59:22 GMT

pipeguy wrote:
drkaje wrote:
@ Pipeguy,

How is it a captive customer base?
The "captive" customer base is those that must use a lender like First Premier to get any "credit card". I posted a link yesterday from American Banker that talks about the First Premier business model.

http://ficoforums.myfico.com/t5/Credit-in-the-News/Interesting-Look-at-First-Premier-MasterCard-Business-Model/m-p/1353791

From the article:

Thanks to the preliminary injunction, First Premier offers on the Internet three different unsecured cards that, for a $300 line, require a $95 "processing fee" paid before issuance, plus a $75 annual fee (25% of the credit line) for the first year, charged to the card, and a 36% APR. Hence, using the full line for one year you pay a total of $278, more than 90% of the line.

Why anyone would pay $278 in fees-interest for a $22 usable credit line is beyond me, but there seems to be a customer base that is so captive to their bad credit rating that they accept these terms over a secured card.

A credit rating is based upon ones payment history and financial decisions.

Rebuilding, like comedy, isn't always pretty. I started back with a card from 5th/3rd Bank, co-branded through a student loan company. It was pretty ugly, LOL!

I'm not disagreeing about the rates being crazy but we pretty much put ourseles in the position to be taken advantage of. Without some of those companies people would just have to wait until everything aged off before getting credit again.

Re: Not Good - Consumer agency backs down on card fees

webhopper — Sat, 21 Apr 2012 05:02:53 GMT

drkaje wrote:
pipeguy wrote:
drkaje wrote:
@ Pipeguy,

How is it a captive customer base?
The "captive" customer base is those that must use a lender like First Premier to get any "credit card". I posted a link yesterday from American Banker that talks about the First Premier business model.

http://ficoforums.myfico.com/t5/Credit-in-the-News/Interesting-Look-at-First-Premier-MasterCard-Business-Model/m-p/1353791

From the article:

Thanks to the preliminary injunction, First Premier offers on the Internet three different unsecured cards that, for a $300 line, require a $95 "processing fee" paid before issuance, plus a $75 annual fee (25% of the credit line) for the first year, charged to the card, and a 36% APR. Hence, using the full line for one year you pay a total of $278, more than 90% of the line.

Why anyone would pay $278 in fees-interest for a $22 usable credit line is beyond me, but there seems to be a customer base that is so captive to their bad credit rating that they accept these terms over a secured card.
A credit rating is based upon ones payment history and financial decisions.

Rebuilding, like comedy, isn't always pretty. I started back with a card from 5th/3rd Bank, co-branded through a student loan company. It was pretty ugly, LOL!

I'm not disagreeing about the rates being crazy but we pretty much put ourseles in the position to be taken advantage of. Without some of those companies people would just have to wait until everything aged off before getting credit again. Or pay everything off.. COs and all

Re: Not Good - Consumer agency backs down on card fees

drkaje — Sun, 22 Apr 2012 20:11:52 GMT

@ wh,

I'm not gonna bite. :)

Re: Not Good - Consumer agency backs down on card fees

stan_the_man — Mon, 23 Apr 2012 05:28:43 GMT

Revelate wrote:
95+75=170.

So if 30% of their people basically run up $300 and then don't pay it, that may well be reasonable. At their strata, they're extending credit to some folks who do exactly that... and I know for one subprime lender I worked at, 30% default rate was a fact of life at one point.

It's actually worse! First Premier's charge off rate is 40%:

http://www.argusleader.com/assets/pdf/DF177153721.PDF

(see page 9)

Re: Not Good - Consumer agency backs down on card fees

stan_the_man — Mon, 23 Apr 2012 05:36:22 GMT

pipeguy wrote:
Revelate wrote:
95+75=170.

So if 30% of their people basically run up $300 and then don't pay it, that may well be reasonable. At their strata, they're extending credit to some folks who do exactly that... and I know for one subprime lender I worked at, 30% default rate was a fact of life at one point.
Perhaps in that one case, however national default rates (MC/V/AE & Disc) including major sub-prime lender Capital One, are running less than 3% and no more than 5% for the 4th Qtr of 2011 and 1st Qtr of 2012 - nowhere near 30%. First Premier actually reined in their up front charges, they used to be much higher where a $300 CL had maybe $50 to $75 available credit after up front fees plus no grace period on 36% or more APR interest. I don't care how high the expected default rate is, that's just plain Mod Cut of their captive customer base.

Capitol One may serve sup-prime borrowers, but that is not their only customer base like First Premier -- so comparing their default rates is not exactly apples to apples. Also, it appears that you are quote a monthly default rate (I wish I knew how to annualize it):

http://www.trefis.com/stock/cof/articles/106339/credit-card-default-rates-rise-in-january-for-capital-one/2012-03-01

Re: Not Good - Consumer agency backs down on card fees

drkaje — Mon, 23 Apr 2012 20:49:23 GMT

Not that knowing would improve my life, but it would be interesting to know what the default rate is by credit score. I never trust numbers like that until getting some idea as to how they were arrived at.