Credit cards available to people with risky credit history have always been laden with beneficial terms. All of these come with a low limit, such as a few hundred dollars, but startle you with fees that make you saddled with debt even before you use it.
The CARD Act, which officially goes into effect on Monday, Feb. 22, prohibits these fees for borrowers with subprime credit. As such, issuers are looking at other ways to recoup lost revenue by jacking up rates or strategies that stays well within the law.
Experts say that subprime borrowers will still receive offers from lenders, but this will be lesser and offer hefty new fees, like customer service fees.
The most harmful effects has dawned on the subprime lot: Issuers have now increased their rates, shifted from fixed-rate to variable-rate offerings, slashed credit limits to gobble up available credit and close useless, unproductive accounts.
However there are new requirements in the CARD Act applicable to credit card holders in general that are seen to benefit subprime customers. This is the new policy on due dates. The new law requires that due dates should fall on the same day for every month. Also, middle-of-the-day deadlines for payments are likewise not allowed. This will make it easier for customers to know how to budget their payments and prevent late fees.
There is one new policy that is noteworthy, that is requiring that billing statement should present the duration for the card holder to settle the debt even if he or she makes the minimum payments. The law also mandates users to advise customers in financial trouble to seek credit counseling.
In terms of subprime cards, the biggest effect from the CARD Act is the limit on upfront fees on those cards at 25 percent of the credit limit in the first year. This seems welcome news for people living on their paychecks. However, faced with this, issuers have devised other ways to earn, such as increasing the APR for some credit card offers.
To remain competitive, issuers are currently considering adding processing fees, increased interest rates, outsourcing and layoffs.
There have been fallouts and closures, and subprime borrowers seem to have diminishing options amid the new restrictions.
However, there are still banks who cater to subprime borrowers albeit not as gung-ho as they would seek good credit customers.
But the basic problem with subprime cards is that they provide only small loans but with high operating costs and rates.