First Premier Bank Skirts Credit Card Act Provisions with High Interest Rates and Fees

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If you're looking for a credit card but have bad credit, watch out for First Premier Bank. While First Premier is a legal, FDIC-insured financial services firm, its lending practices are questionable. Their credit cards, particularly the Aventium, Centennial and Classic, have absurdly high interest rates and come with a laundry list of shrouded fees aimed at the most vulnerable borrowers.

The first of these bad credit cards' many egregious terms is the 49.9% APR. And this actually represents a reduction in the purchase interest rate, from 79.9%! If you carry any balance at all, you'll be paying half again on every dollar you're in debt in a given year. By comparison, the average APR nationwide for those with bad credit is around 24%, less than half of First Premier's. 

The Credit CARD Act of 2009 stipulates that the total costs for the first year must be less than or equal to 25% of the credit limit. First Premier gives you a starting $300 credit limit. They set the first year's annual fee at $75, which is--you guessed it--exactly 25% of $300, meaning your real credit limit is only $225. But First Premier has tried its darnedest to get around even this basic limitation. 

Dodging the Fed's first move

First Premier's initial attempt to circumvent the 25% first-year ceiling was a $95 processing fee. Their reasoning was that the fee was levied before issuing the card and therefore would not count as a cost in the first year. The Federal Reserve shot down that argument, clarifying in February of this year that processing fees actually do count towards the first year's costs, nixing First Premier Bank's Plan A.

The bank did not give up, however. The $95 processing has now become a $95 "security deposit" that all cardholders must pay in order to obtain the cards. Security deposits are by no means standard practice for unsecured credit cards. In fact, it defeats the purpose of a regular credit card since the main reason to get one in the first place is to avoid paying the large deposits that secured credit cards require. 

Spirit-of-the-law evasion continues beyond the first year

The CARD Act limited how much First Premier could charge its cardholders in the first year, but the bank got creative with fees in the second year and beyond. 

The terms and conditions of the credit card application list a number of fees and charges that will be assessed after 12 months. The most cunning is the $6.50 monthly service fee, which appears negligible but adds up to $78 a year. And that's in addition to the annual fee of $45 after the first year. In other words, even if you don't ever run a balance, you will still be stuck paying $123 a year. That's a 64% increase from $75 first-year fee.

If you take out a cash advance or use your card internationally after the first year, the extra fees will continue to pile up. First Premier charges a 3% fee on both transactions. And each time you want to raise your credit limit, you'll also have to pay a fee equal to 25% of your credit limit increase. After using a few of their services, you can easily rack up yearly costs of more than 70% of the already-steep annual fee. The card is a fee-generating machine for First Premier Bank. They make money whether you carry a balance, put the card in your sock drawer and never use it, or even act responsibly enough to earn a higher credit limit.

Bending the rules even more

First Premier only delays the largest fees and charges until the second year. There's another laundry list of incidental fees that the bank can still get away with charging in the first year: such as copying, online banking access, wire transfers, and express delivery fees. First Premier charges these fees as "payments" in order to get around the 25% cap. This practice implicitly decreases cardholders' credit limits and deprives them of an already tight credit limit. 

The ones who aren't in a game of tag with the Fed

Unfortunately, there are a lot of companies like First Premier that are out to take advantage of  unsuspecting or less financially savvy consumers: for example, NetFirstPlatinum.com. Net First Platinum appears to be a credit card, but in fact is a fee-laden, glorified gift card to an overpriced and kind of sketchy online store. But have no fear. There are still legitimate options for people with bad credit who want a card from a trustworthy bank. 

If you are looking for a regular (unsecured) credit card, check out the Orchard Bank MasterCard or Visa. At an effective $68 the first year and $59 thereafter, the annual fee for the Orchard Bank card is higher than your typical credit card's, but that's to be expected considering it targets consumers with less-than-stellar credit. It's a regrettable fact that those with bad credit, who are more likely to need to carry a balance every so often, tend to see higher interest rates and fees than those without. But compared to the First Premier card, Orchard Bank has the deal of the century. 

As previously mentioned, secured credit cards are another the way to go. Typically, applicants pay a deposit equal to the credit limit of the card up front. However, payments are not deducted from the deposit. The deposit will only be returned when the credit account is closed. 

Orchard Bank Secured MasterCard has pretty decent terms: $35 a year and 7.9% APR. Both the Citibank Secured and Capital One Secured have a lower annual fee of $29, but a higher interest rate. Secured credit cards are generally preferable to prepaid debit cards, which in addition to having numerous fees do nothing to build up your credit score. We recommend that you give prepaid debit a pass and work up to qualifying for a regular credit card.

Anisha Sekar is an analyst at NerdWallet, a site dedicated to helping consumers understand credit card offers.