Jul 25, 2007

Financial Rape - A Credit Card with 62.59% Interest

Left: Usurious "Tribute Gold MasterCard" summary of terms; click to enlarge details.

(Toledo, OH) A young person I know, who shall remain nameless, applied for and received his first major credit card. Upon closer inspection of the terms, though, I was shocked to find that First Bank of Delaware - through its agent CompuCredit Corporation - will be exacting at least 62.59 percent interest on this $500 Tribute Gold MasterCard.

CompuCredit describes itself as a "provider of financial products and services to the underserved market" and as having a corporate culture that is "focused on providing the underbanked with the credit they deserve."

The annual percentage rate on this preposterous credit card is 29.99 percent, and they tack on a whopping $85 annual fee. In addition, there is a $6.50 "account maintenance fee" per month, which is $78 per year.

Let's see. If this person only charged $250 worth of goods and services today, in 12 months they would be paying 65.2 percent interest just on the annual and monthly fees, plus 29.99 percent in actual interest. That becomes 94.19 percent interest on the $250 balance.

And then there are other assorted goodies, like the $35 late payment fee, the $35 overlimit fee, and the cash advance fee of 5 percent over and above the 29.99 percent basic rate.


Now, admittedly, this young person has little in the way of financial savvy, and there is an important lesson here in financial responsibility that needs to occur. Still, a part of me begins to question the point at which loans to people with little or no credit (or poor credit) become outrageously usurious.

This card seems to have gone far beyond the level of acceptable standards in consumer finance, and I hope that there will one day be a day of reckoning for those who fleece the unsuspecting and the financially naïve.

And - for those of you who just stumbled across this post - be sure to read the terms and conditions of every financial document you sign. There are far too many devious corporations like First Bank of Delaware and CompuCredit Corporation that will be more than happy to rip you off.


Anonymous said...

That's some sick shit. Hell/special circle/ Satan / burning pokers kind of sick shit.

jd said...

Your Ohio revised code says 25% is the maximum interest rate:
ORC§ 2905.21

H. “Criminal usury” means illegally charging, taking, or receiving any money or other property as interest on an extension of credit at a rate exceeding twenty-five per cent per annum or the equivalent rate for a longer or shorter period.

Those fees might still be legal, although they are outrageous; here's the code:

Ohio usury


Anonymous said...

You could never reach that $500 limit with all those fees and interest. At best, a person could get to about $300 before hitting the wall with all of that stuff that's tacked on.

historymike said...

Agreed, Anonymous #1. Dante put them in the Seventh circle's inner ring, and they "reside in a desert of flaming sand with fiery flakes raining from the sky."

Sounds appropriate.

historymike said...

I looked those up, JD, and they have some ambiguous wording. In one section (1109.20 ORC) it says "Any fees and charges charged, collected, or received by a bank in accordance with this division shall not be included in the computation of the annual percentage rate or the rates of interest or finance charges for purposes of applying the twenty-five per cent limitation."

However, in 2905.21 "criminal usury" does not give the exemption to fees that add up to an effective rate of interest over 25 percent.

historymike said...

Anonymous #2:

Good point. I our hypothetical borrower went out today and charged up $500 worth of goods, by next month he would be hit with overlimit fees.

My math skills are not that strong, but I think $300 worth of purchases is a good estimate of when the borrower would "hit the" wall before the overlimit fees would kick in.

You might be able to run up $400 right away, but the annual fee probably hits right away, and that interest would start accruing.

Any finance majors out there?

SensorG said...

At lot companies do this to the "underserved". It basically amounts to a "poor tax". My friend's car insurance went up because she had bad credit. She never missed an insurance payment, but that didn't stop her from insurance company from raising her rates.

Basically if you are poor, it will cost you more to do almost everything. You have to pay higher interest on credit cards with lower balances and higher fees, you have have to pay more for home and car loans. Even if you go to self insure for medical it will cost you more.

This just doesn't apply to people who abused credit or got in over their head. If you simple don't make a lot at your job, you will be charged more because you are "a risk". The problem is this just helps keep the poor poor.

Mad Jack said...

Don't get me started. I got into a very bad situation with a company called Care Credit, AKA GE MoneyBank. I may not have even been contractable at the time, as I was high on Xanax and painkillers.

SensorG is quite right. Predatory lending has reached new highs and lows. I find it particularly interesting that you, HistoryMike, who is clearly a well educated and intelligent man, does not have the math skills to easily calculate the maximum amount that could be charged on this card without running into additional "over limit" fees.

You don't lack math skills. The credit card company has deliberately obscured the issue, and the company has done so maliciously.

Hooda Thunkit said...

If anything deserves posting as a "Scam Alert" of the year, it would be this.

This is even worse than those payday loan outfits.

Makes them almost look legit..., Almost.

Anonymous said...

It is time our congress takes a leadership position on the rape of Americans! The credit card companies are the whores of banking and they have bought and paid for the right to do so with special interest money to the candidates. It is time to stop these people!

JH said...

I'm currently taking a business law course, taught by a Municipal Judge in Columbus. In reference to JD .. If the Ohio maximum limit of 25% wasn't upheld by the credit company in contract, the card-holder could begin a lawsuit against the company for violation of the state usary statutes. Whether this lawsuit would be successful would be based on many things, but may be worth a shot.

The plaintiff may be able to take defense in 'fraud in the inducement of the contract.' Violation of the Ohio usary statute would obviously need consideration, and the 'integration' of the contract, whether it was fully or partially integrated, would determine whether outside sources, third parties, etc could be investigated and presented in court.

I would re-look at the contract and get a lawyer. Time is ticking ..

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