Thursday, February 9, 2012

First Premier

NEW YORK (CNNMoney) -- Would you pay $400 a year to own a credit card?

That's how much the First Premier Platinum card can easily wind up costing its customers, according to CardHub, a credit card-tracking website that has examined more than 1,000 credit card offers.

First Premier's Platinum card, aimed at consumers with poor credit, not only boasts a sky-high 36% APR but it also comes loaded with some of the highest fees in the credit card industry, said Odysseas Papadimitriou, CEO of CardHub.

First Premier, which has 2.6 million customers and sends solicitations to 1.5 million consumers each month, says it is helping consumers who would otherwise be rejected by most credit card issuers and therefore needs to price in risk by assessing high fees and interest rates.

"All of our products are priced based on the risk associated with offering the product to these individuals, many who find themselves at the lower end of the credit scale," CEO Miles Beacom told CNNMoney in an email.

While Papadimitriou agrees that fees and interest rates for high-risk customers should be steeper than they are for customers with good credit, he said the kind of fees First Premier charges are doing little to help customers who are already in a bad financial situation.

"[First Premier] is claiming to be helping people with bad credit. How are you helping them by charging these outrageous costs of your products?" he said.
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The nastiest fee is the "Credit Limit Increase Fee." Customers pay the fee each time their credit limit is increased. Papadimitriou said he knows of no other card company that charges such a fee.

When First Premier increases a customer's credit limit, it charges 25% of the amount by which the limit is increased. Customers can apply for a credit limit increase any time, but can't receive an increase until they have been a customer for 13 months. Increases range between $100 and $200.

Thousands of customers apply for credit limit increases every month, and about one quarter of requests are granted based on credit risk and a customer's performance within their current limit, First Premier said.

When customers call to ask about a credit limit increase, First Premier representatives tell them the fee will be assessed if they are approved -- before processing the request, according to a customer service script that First Premier sent to CNNMoney. When customers apply for a limit increase online, they are provided with the same information then given the option to cancel their request, the card issuer said.

If the cardholder's limit is raised by $200, they pay a $50 fee. Customers have 30 days following the credit limit increase to contact First Premier if they want to cancel the increase and get the fee refunded.

Taking this and other fees and interest into consideration, a customer who gets a $200 credit limit hike and has a revolving balance of $500 would end up paying $453 per year to use First Premier's Platinum card after the first 13 months of owning it -- including $180 in interest with its 36% APR, a $50 credit limit increase fee, an annual fee of $49 and $174 in monthly fees. During the first year, the annual fee is $175 and monthly fees are waived.
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Carrying a balance of $322, which First Premier said is the average balance of its customers, would bring the total annual cost down but it would still be a steep $389.

Even for customers with horrible credit, this is far too much to pay for credit, said Curtis Arnold, founder of credit card comparison website Customers start to become undesirable to typical credit card issuers when their scores dip into the low 600s, he said.

While many issuers steer clear of this market, there are other options besides First Premier. Orchard Bank, for example, offers a Platinum credit card for consumers looking to rebuild their credit, said Arnold. The card comes with fees totaling $39 or $59 a year and an APR of 14.99% or 19.99%, depending on their credit. Like First Premier, Orchard also reports to the credit bureaus, allowing customers to improve their credit histories.

"I worry that a lot of consumers get solicitations from [First Premier] and think it's their only option -- they say: 'At least this place is giving me a chance'," said Arnold. "But while [First Premier] is bragging about helping people back on their feet, they're in fact beating people when they're down."

Another alternative to First Premier's credit card is a secured card. Secured cards come with much lower fees because they require the cardholder to deposit their own money into the account. Many banks issue them to their highest-risk customers instead of credit cards.

Interestingly, First Premier offers a secured card with reasonable rates, but the card is not mentioned on the homepage of its website, said Papadimitriou. First Premier said it wants to highlight one product at a time on its website.
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First Premier has been experimenting with new cards, fees and interest rates ever since the Card Act was announced in 2009, which limited the fees the issuer could charge, First Premier said.

In 2009, First Premier made headlines for offering a card with a 79.9% interest rate for a brief period of time. It later offered a card with a 59.9% APR, before getting rid of the card altogether last year. It is still offering a card with a high 49.9% rate.

And while its fees may have taken different forms in recent years to meet the Card Act regulations, both Papadimitriou and Arnold agree that First Premier still takes the cake for offering the costliest credit cards in the industry.

"I've looked at credit cards for over a decade, and these credit cards are downright scary," said Arnold. "They're definitely not the only bad apple out there, but I can't think of an issuer that is worse."

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