Government to the rescue: Enjoy that 79.9% interest rate

I was in a nationwide retailer last night with a friend of mine who was in the market to purchase a new mattress. The sales clerk informed him that he could take advantage of their twelve-month no interest, no payments financing. She commented that they were discontinuing this program shortly because Congress, in their infinite wisdom, had passed credit card reform this past year outlawing these types of lines of credit.

This seemed simultaneously strange and infuriating to me. I've made quite a few purchases using such payment programs; typically I keep my money in an interest-bearing account and make sure to pay the entire balance of the credit card off before the twelve-month period lapses. I find that it's a good way to make your money work for you. Could what she was saying really be true?

The White House website has a press release detailing the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. Sure enough, what this sales clerk had told me was in fact accurate. This new law bans retroactive rate increases. The way that these twelve-month no interest, no payments financing programs work is that if you do not pay off the balance in full by the end of the twelve-month period, finance charges are assessed from the date of purchase.

Another fun and unintended consequence of this legislation is the advent of the 79.9% interest rate credit card that targets consumers with poor credit histories that would not normally qualify for a credit card. This article from the AP explains:

The bloated APR is how First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It's a strategy other subprime card issuers could start adopting to get around the new rules.

The article continues:

In a mailing sent to prospective customers in October with the revamped terms, First Premier writes "...you might have less-than-perfect credit and we're OK with that." The letter notes that an online application or phone call is still required, but guarantees a 60-second status confirmation.

The letter also states there are no hidden fees that aren't disclosed in the attached form. That's where the 79.9 percent interest rate and $75 annual fee are listed. There's also $29 penalty if you pay late or go over your $300 credit limit.

Good luck ever paying your balance on that credit card off! Many thanks to the do-gooders in Washington, D.C., for once again saving us from ourselves.