ABC News posted an article about First Premier Bank in South Dakota. The bank did a small test where it took around 9000 applications for a credit card that carried an interest rate of 79.9% interest. This is ridiculous that they would offer such a banking product but on the flip side 9000 people sent in an application for it!

After receiving the applications the bank decided to lower the interest rate as this was a test product. While it was a significant drop from a numbers stand point it only went down to 59.9%. The average APR in 2010 was 13.78%.

What is wrong with this? Many people will read the article and see that it is marketed towards people who have bad credit/low credit scores and they keep the credit lines around $300.00. Is this still okay? No, now they are taking advantage of those that can least afford it.

What is wrong with this is many of the people will carry a $300.00 balance and pay the high interest and will continue to be in debt and struggle. There is a reason they have bad credit and this causes these people to stay there because many of them feel they have no other options but to go with something like this.

The second thing wrong with it is their fee structure. This may be worse than the interest rate because if you are getting the card “just for an emergency” then you are paying way to much for something you are not even using. According to the article the card comes with $45.00 fee to open the account, a $30.00 annual fee (which raises $15.00 the second year), and a $6.25 monthly servicing fee. In the first 12 months assuming you do not use the card at all you will still pay $150.00 for the “privilege” of carrying it and then you will pay $120.00 per year thereafter the maintain it.

Banks like this are what keep people in debt. People who have financial troubles or are just starting out and feel like they need to build their credit score and this is the only way to do it end up paying massive amounts of fees and interest. One way to cut down on this is to teach personal finance in high schools to prepare those who will be turning 18 in the coming few years that you do not need to turn to fee-harvester banks and high interest to build your credit.

Now, in all fairness, it is the persons fault for signing up for it as well. Private business has a right to charge what the market will bare and as long as people are buying their products at higher prices they will continue to sell at higher prices. Think of it from a bank perspective: Do you give 10 people $1000.00 credit lines at 15% interest or 5 people $300.00 credit lines with 59% interest?