The very worst of the sub prime credit card issuers had some of their outrageous practices curtailed in the latest round of credit reforms. Actually some of their tricks were amazingly clever as only those who failed to read the terms and conditions had anything to complain about, but that was a vast number of users. Targeting those with bad credit histories the cards were often taken up by those in such desperate want of credit they were addicted to plastic without ever giving a thought to how to use it properly. Much easier to ignore the rules and file for bankruptcy, then pick up the next sub prime card and repeat the whole thing.
A typical ploy which was used before the credit reforms came into place was to levy huge charges onto the card which could literally take most of the available credit offered. Some of the worst cards left the card users in debt before they ever used them, but they had their shiny plastic and probably never even noticed. After all with a credit score that was so bad it was off the scale they could still get new cards from the seediest sub prime lenders which gave pay day loans a really good name.
Facing the new laws being implemented First Premier Bank, one of the craftiest sub prime credit card issuers with myriads of imaginative charges up their sleeve, realised their charging habit was about to be curtailed. They took a new approach by mailing out offers of opportunity to obtain a bad credit card at the staggering APR of 79.9%. Despite reporting a 2% take up of cards on this exorbitant APR, which is a good return on a direct mailing, their current APR is only 19.9%, quite a low rate in the world of sub prime credit. No longer able to add more than 25% of the credit balance in upfront fees they now need to rely on their customers paying late to incur late penalty fees, and hoping they go over their credit limits and incur additional penalties. Despite that First Premier do offer a grace period on the card which many other sub prime lenders do not do.
What the changes have meant is that more bad credit cards are changing into secured credit cards which require a deposit equal to the amount of credit on the card. Whereas previously the worst sub prime lenders made the bulk of their money from charges, now the emphasis is changing, and we can expect to see more sub prime lenders marketing their cards as a way for consumers to improve their credit scores. Previously many just paid lip service to this aspect of their cards as they knew the majority of users weren’t concerned with this aspect as if they were they would have shopped around and avoided the worst sub prime cards like the plague.
It will be interesting to see which niche sub prime lenders fall into now that the most profitable part of their lending has had to cease, but there is a distinct possibility that in order to stay the course some will actually begin to market better products which are not targeted specifically to those who want credit at any cost, but to those who need to re-establish their credit score. There is a whole new sector to win over to credit as over one quarter of Americans do not use credit cards, and sub prime lenders will be waiting to be first in line.