Sub-prime banks or sub-prime consumers

[designated_knitter]

Someone posted on a thread that there are no sub-prime banks... only sub-prime consumers.

Yet, we are often warned when rebuilding to stay away from banks like First Premier and other banks that offer cc to people with low Fico scores because of the high fees and interest and low growth potential.  In fact, First Premier is one of the top-performing banks in terms of profits despite the presumed riskier card-holder base.

So I'm curious whether it's the banks (or at least the cc offerings) that are sub-prime... or is the consumer base to which they cater "sub-prime?"  Are the business practices employed by thes lenders predatory or an appropriate response to catering to a riskier consumer profile?

[Anonymous]

It's a combination of things. Some banks cater to higher-risk, lower-score customers, implying that it's the client base that's subprime. However, the way I see it, the fact that some charge usurious rates and fees is what separates subprime banks from banks that are willing to lend to subprime customers. CapOne will lend across the spectrum but I don't look at them as a subprime bank in that their terms aren't horribly abusing even to the lowest-ranked borrowers (and in the case of Auto Navigator, it can be surprisingly good). Fortiva on the other hand, is a subprime bank through and through, charging 36% APR and you can end up owing 80% of the SL from fees before the card even arrives.

[BearsCubsOtters]

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@designated_knitter wrote:

Someone posted on a thread that there are no sub-prime banks... only sub-prime consumers.

Yet, we are often warned when rebuilding to stay away from banks like First Premier and other banks that offer cc to people with low Fico scores because of the high fees and interest and low growth potential.  In fact, First Premier is one of the top-performing banks in terms of profits despite the presumed riskier card-holder base.

So I'm curious whether it's the banks (or at least the cc offerings) that are sub-prime... or is the consumer base to which they cater "sub-prime?"  Are the business practices employed by thes lenders predatory or an appropriate response to catering to a riskier consumer profile?

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My guess is that this thread will probably be moved to Smorgasboard by the mods.

But I would agree that there are banks that cater to sub-prime consumers. 

I do not feel that these banks are predatory as they are offering a service to individuals that are going to have to pay higher fees to obtain the credit that they seek. The banks provide all of the terms clearly in the Schumer Box-if the consumer does not read this information then they have nobody to blame but themselves. 

It is all about educating oneself. Many people with credit problems are inundated with mailings from banks like First Premier and Credit One touting "unsecured credit" and a lot of them take the bait. These consumers are not dumb or lazy, they just fell for the marketing and did not realize there are other options, such as secured credit cards from larger banks or credit unions.

Hopefully such people will eventually stumble onto forums like this so that we can steer them away from First Premier et. al. 

In the end though, these banks are an ends to a means. If a consumer chooses to go with these banks, they can rebuild their credit and eventually cut ties with them. 

[Anonymous]

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@Anonymous wrote:

It's a combination of things. Some banks cater to higher-risk, lower-score customers, implying that it's the client base that's subprime. However, the way I see it, the fact that some charge usurious rates and fees is what separates subprime banks from banks that are willing to lend to subprime customers. CapOne will lend across the spectrum but I don't look at them as a subprime bank in that their terms aren't horribly abusing even to the lowest-ranked borrowers (and in the case of Auto Navigator, it can be surprisingly good). Fortiva on the other hand, is a subprime bank through and through, charging 36% APR and you can end up owing 80% of the SL from fees before the card even arrives.

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Yes.   While it is certainly the consumers that are actually subprime (or not), a bank can choose how much of their portfolio is targetted at such consumers.   And to some extent that changes over time, we've seen Credit One add some higher level products.   Customer diversity has some value for issuers, both to protect financials (so you still have some performing customers in a bad downturn, and can make lots of interest profit when things are good) and to some extent reputation.

This more often comes up with questions about which banks/cards are prime.   Which is equally fuzzy, e,g, Chase Freedom and Amex charge cards can sometimes be got with fairly low scores, maybe not quite subprime.

[AverageJoesCredit]

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@BearsCubsOtters wrote:

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@designated_knitter wrote:

Someone posted on a thread that there are no sub-prime banks... only sub-prime consumers.

Yet, we are often warned when rebuilding to stay away from banks like First Premier and other banks that offer cc to people with low Fico scores because of the high fees and interest and low growth potential.  In fact, First Premier is one of the top-performing banks in terms of profits despite the presumed riskier card-holder base.

So I'm curious whether it's the banks (or at least the cc offerings) that are sub-prime... or is the consumer base to which they cater "sub-prime?"  Are the business practices employed by thes lenders predatory or an appropriate response to catering to a riskier consumer profile?

---

My guess is that this thread will probably be moved to Smorgasboard by the mods.

But I would agree that there are banks that cater to sub-prime consumers. 

I do not feel that these banks are predatory as they are offering a service to individuals that are going to have to pay higher fees to obtain the credit that they seek. The banks provide all of the terms clearly in the Schumer Box-if the consumer does not read this information then they have nobody to blame but themselves. 

It is all about educating oneself. Many people with credit problems are inundated with mailings from banks like First Premier and Credit One touting "unsecured credit" and a lot of them take the bait. These consumers are not dumb or lazy, they just fell for the marketing and did not realize there are other options, such as secured credit cards from larger banks or credit unions.

Hopefully such people will eventually stumble onto forums like this so that we can steer them away from First Premier et. al. 

In the end though, these banks are an ends to a means. If a consumer chooses to go with these banks, they can rebuild their credit and eventually cut ties with them. 

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 Banks will always take advantage of people whether through ones desperation, ignorance, or  just plain greed. Even people with means,  try getting credit one needs if things go south , its always easier to get credit when one doesnt need it then when one actually does. Banks and money  are what determines who is subprime or prime lol but thats just my view

[Horseshoez]

@designated_knitter, your thought provoking post did that, it made me think.  What I came up with is on a slightly different tangent to the "sub-prime bank vs. sub-prime consumer"...

I'm thinking given how fleeting or dynamic credit scores can be when one's financial picture changes, I'm thinking the question is kind of a chicken and egg scenario, is it the credit product which is sub-prime or the current credit scores which are sub-prime.  I say this because many of us have, for many-many years at least, been what I'll call "super-prime" consumers with scores up in the 800s for years, decades even, and then financial hardship happened.  Be it the break up of a marriage and the financial ruin that can bring to one or both partners, or a business failure, a risky real estate investment which went south, whatever, suddenly our super-prime consumer has sub-prime scores.

With the above said, and speaking strictly for myself, I consider myself to be a super-prime consumer even though my FICO 8 scores are all in the 666 to 699 range.  Why?  Prior to my financial world collapsing after the recession, I'd had a very high credit rating since the early 1980s, and have every intention of being back into the upper tier of the credit world by early next year.  Will that happen, or is it just my ego/vanity talking?  No way to be sure unless and until it happens, but working in my favor is the aging of my Chapter 13, which should fall off my credit reports on or before January 2022, I have good income, my fixed monthly living expenses amount to only about 16% of my income, and even when I factor in normal monthly discretionary spend and retirement contributions, I'm still only burning through about 35% of my monthly cash.

I guess this is all to say, many of us with sub-prime credit scores are, in our minds at least, prime or even super-prime consumers; our job is to convince financial institutions of we are more worthy (is "more worthy" a valid syntactical construct?  is "worthier" better?) of higher end credit products than our scores currently indicate.

[Horseshoez]

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@AverageJoesCredit wrote:

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@BearsCubsOtters wrote:

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@designated_knitter wrote:

Someone posted on a thread that there are no sub-prime banks... only sub-prime consumers.

Yet, we are often warned when rebuilding to stay away from banks like First Premier and other banks that offer cc to people with low Fico scores because of the high fees and interest and low growth potential.  In fact, First Premier is one of the top-performing banks in terms of profits despite the presumed riskier card-holder base.

So I'm curious whether it's the banks (or at least the cc offerings) that are sub-prime... or is the consumer base to which they cater "sub-prime?"  Are the business practices employed by thes lenders predatory or an appropriate response to catering to a riskier consumer profile?

---

My guess is that this thread will probably be moved to Smorgasboard by the mods.

But I would agree that there are banks that cater to sub-prime consumers. 

I do not feel that these banks are predatory as they are offering a service to individuals that are going to have to pay higher fees to obtain the credit that they seek. The banks provide all of the terms clearly in the Schumer Box-if the consumer does not read this information then they have nobody to blame but themselves. 

It is all about educating oneself. Many people with credit problems are inundated with mailings from banks like First Premier and Credit One touting "unsecured credit" and a lot of them take the bait. These consumers are not dumb or lazy, they just fell for the marketing and did not realize there are other options, such as secured credit cards from larger banks or credit unions.

Hopefully such people will eventually stumble onto forums like this so that we can steer them away from First Premier et. al. 

In the end though, these banks are an ends to a means. If a consumer chooses to go with these banks, they can rebuild their credit and eventually cut ties with them. 

---

 Banks will always take advantage of people whether through ones desperation, ignorance, or  just plain greed. Even people with means,  try getting credit one needs if things go south , its always easier to get credit when one doesnt need it then when one actually does. Banks and money  are what determines who is subprime or prime lol but thats just my view

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I don't have such a negative view of financial institutions, lending institutions are just another business which need to make business decisions on how their particular model will allow them to make money from the money they have; it is incumbent upon them to do so or they will fail.  If a particular lender sees profit in lending to those with lower tier credit scores where many/most other lenders will not offer even a dollar of credit, then good for them.  Will I patronize such lenders?  Heck no.  Do I think they bring beneficial products to the market place?  Yes.

[Brian_Earl_Spilner]

The lenders themselves aren't sub-prime, but the products they provide to their target demographic can make them perceived as such. As mentioned above, Credit One is an excellent example. The hate for them is strong here, but not many realize that they literally have almost 30 variations of their platinum card, some of which have a grace period, no fees, better rates than prime cards, and rewards. In an attempt to grow their business (and possibly to combat their image), they've started offering better products as well as actively targeting people with better credit.

There's also other lenders such as Goldman and amex that want to tap into the near-prime, or even sub-prime, as there is much opportunity there. That doesn't make them "sub-prime" all of a sudden. Most companies will go where the money is so their business will evolve to reflect that.

[calyx]

A lot of this discussion is why I kind of loathe (and shy away from) the terminology of "sub-prime/prime" (and an even bigger offender, imo: "Tiers") when I define or categorize FIs/cards on the board.

Some people see CapOne as "SubPrime," while some people don't.
One could argue that Disco is "SubPrime" and yet I know ridiculously wealthy folk who live and die by their Disco card because they like their service.

I do believe there are predatory/non-predatory banks.  While the majority of banks are going to do what they need to do to make money/profit off of their customers, I think some are definitely overly usurious or predatory.

There are banks that require customers to buy overpriced goods for a credit line, or charge monthly/or really high annual fees to the detriment of higher-risk clients ("subprime" consumers) but there are banks that also charge what I would consider reasonable fees (USBank, Opensky, etc) for those same consumers to hold a secured card, which mitigates risk.  But again, that's my personal opinion.

I also don't think that we can rank prime/sub-prime based on customer service, because you'll have just as many opinions on that as there are customers.   I think Citi CS is made of ice cream and unicorns - others disagree.  I had fantastic interactions every time I called Opensky, but I know that's not true of everyone.   I also think that WellsFargo can die a thousand deaths (and that's not enough), but I recognize that's very personal to me; it doesn't make them subprime (although others might disagree).

[Loquat]

Subprime vs. Non-subprime just isn't an argument you hear these days outside of forums such as this one.  Most big lenders are full spectrum and spread their approvals across a wide range.  What you get, the fees you pay, etc is all based on risk.  

With most folks having access to the internet these days there's becoming very little excuse for making uneducated decisions.  There are websites, forums such as this one, YouTube, etc.  If one choose to do business with a lender and don't do their homework first, then one can't claim predatory when they fail to do even the most basic due diligence to educate themselves.

I have no hate for Credit One, First Premier, Indigo or any other lender that is often looked down upon.  A person doesn't have to do business with them.  There's secured cards, most credit unions offer ways to help build/rebuild your credit via secured loans or their own version of a secured card.  

The list of excuses used for making bad financial decisions these days are getting smaller and smaller.