As soon as word got out, it didn’t take long for lawmakers to seize upon the highest credit card rate around — an offer being tested by First Premier Bank, a subprime card issuer, with a mind-boggling APR of 79.99 percent.
Moreover, much to the disdain of House Democrats pushing for a rate cap, the action by First Premier takes advantage of an apparently unforeseen loophole in credit card reform laws set to take full effect in February.
The First Premier card normally offers a minimum of $256 in fees for the first year for a credit line of $250. When the Credit CARD Act of 2009 becomes enforceable Feb. 22, the cap on such fees will be 25 percent of a card’s credit line. In recently mailed notices for its pre-approved card, First Premier offers a fee matching that same limit – $75 in the first year for a credit line of $300.
Along with the fee, a 79.99 percent interest rate is offered.
Reform laws do not set caps on interest rates. It only places restrictions on when and how rates should be imposed, but no limits.
First Premier has said that the offer is being tested, and does not know if it will be continued. First Premier said it needed to “price our product based on the risk associated with this market” in a statement to the Associated Press.
Rep. Dennis Cardoza, D-California, today lashed out at First Premier’s card offer in a letter to Pres. Barack Obama and California Senators Barbara Boxer and Dianne Feinstein.
Cardoza is asking them to support a bill sponsored by Rep. Louise Slaughter, D-New York, chairwoman of the House Committee on Rules. Slaughter and Rep. John Tierney, D-Massachusetts, that would cap credit card interest rates at 16 percent, and penalty fees at $15.
“First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry,” Cardoza said. “It’s a strategy other subprime card issuers could start adopting to get around the new rules.”
First Premier’s website says that credit cards are serviced by Premier Bankcard. The company, based in Sioux Falls, South Dakota, says Premier Bankcard is the 10th largest issuer of MasterCard and Visa cards in the country, with more than 3.5 million customers.
“Our representatives have done a lot to take care of Wall Street, how about doing something to help real people. Almost everyone has a horror story regarding credit card companies, and it’s time to protect consumers from this immoral and predatory industry,” wrote Cardoza.
Under the bill introduced by Slaughter and Tierney, the Truth in Lending Act would be amended to create a “National Consumer Usury Rate,” which provides that the annual percentage rate (APR) “for an extension of credit or outstanding balance on any credit card account may not exceed 16 percent.”
The bill allows the Federal Reserve to make adjustments to the maximum APR in the cap when it is “in the public interest and economic conditions warrant.”
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Lawmakers to Obama: 79.99% Credit Card Calls for Rate Action
NEW YORK — It’s no mistake. This credit card’s interest rate is 79.9 percent.
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.
Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card’s credit line.
In a recent mailing for a preapproved card, First Premier lowers fees to just that limit — $75 in the first year for a credit line of $300. But the new law doesn’t set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.
“It’s the highest on the market. It’s the highest we’ve ever seen,” said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings.
The terms are eyebrow raising, but First Premier targets people with bad credit who likely can’t get approved for cards elsewhere. It’s a group that tends to lean heavily on credit too, meaning they’ll likely incur steep financing charges.
So for a $300 balance, a cardholder would pay $20 a month in interest.
First Premier said the 79.9 APR offer is a test and that it’s too early to tell whether it will be continued, according to an e-mailed statement. To comply with the new law, the bank said it will no longer offer the card that has $256 in first-year fees as of Feb. 21, 2010. However, customers will still be able to use their existing cards.
According to First Premier’s Web site, the credit cards are issued by its sister organization Premier Bankcard. The company, based in Sioux Falls, S.D., says Premier Bankcard is the 10th largest issuer of MasterCard and Visa cards in the country, with more than 3.5 million customers.
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 credit limit. The credit limit is $300.
The bank did not say how many people were offered the 79.9 APR card, but noted that it needed to “price our product based on the risk associated with this market.”
Even if First Premier doesn’t stick with the 79.9 APR, it will likely hike rates considerably from the current 9.9 percent to offset the lower fees, said Shahani of Synovate.
The revamped terms may not be the only changes; First Premier also appears to be moving away from the riskiest borrowers.
The bank typically mails offers to subprime households, meaning those with credit scores below 700. In the third quarter, however, 84 percent of its offers were sent to subprime households, down from 91 percent the same period last year, according to Synovate.
First Premier could be cleaning up its credit card portfolio since the new regulations will limit its ability to raise interest rates. That could mean First Premier won’t issue cards as liberally to those with bad credit.
As harsh as First Premier’s terms seem, that could be a blow to those who rely on the card, said Odysseas Papadimitriou, CEO of CardHub.com.
“Even when the cost of credit is astronomical, for people in true emergencies, it’s much better than not having access to credit,” said Papadimitriou.
Until Feb. 21, First Premier is still offering its even-higher-fee card online. So the price for credit the bank charges is at least $256 in first-year fees.
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First Premier Bank Charges 80% Credit Card Interest
I am sure most of you don’t watch AlJazeera especially those who are in the States. So if you have missed, here is an interview with Robert Kiyosaki on AlJazeera with Riz Khan.
What’s your opinion on the education system of your country? Does it prepare you to be successful businessman or good employee? I think in almost all countries in the world, it’s the latter. Please share your thoughts on this in the comments section.
By Louis Lim, Business Correspondent
In view of the current economic difficulties facing many, people ought to be more ware of what’s happening in the world and how what’s happening can adversely affect their financial securities and lives; if it has not done so already!
It is not a well known secret that one can avoid being a financial casualty by simply acquiring a set of skills different from what we are usually programmed from young to have. The latter has to do with being enslaved to a job or business controlled by others; the other being about having skills to generate an income independent of any circumstance or other people.
Anyone depending solely on a job for a living would be almost completely lost if he loses his job. The unfortunate fact is that since the Multi-Nationals Companies began institutionalizing the treatment of employees as just another business resource, albeit commodity, the age of life-long employment seizes.
Financial results associated with satisfying shareholders’ expectations became the main reason for a business enterprise. Coupled with the practice of achieving short term objectives and the need to maintain share prices, retrenching workers became a normal business practice. Words like ‘downsizing’ and ‘business rationalizing’ became common business parlance.
This dehumanizing of business enterprises, prevalent throughout 18th and 19th century industrializing Britain was revived and practice by American businesses. The new reality in a capitalist environment anywhere means a worker is subject to his job being taken away any day. More importantly, this means also that the individual worker must realize quickly the insecurity of a job.
What then is a worker to do to secure himself? Off course there are skills like being a doctor or dentist and others which are not down sizable. However, most workers are dispensable!
Men are, however, born with an innate creativity which can be described as entrepreneurial but this has historically been replaced by skills which are intended for us to work for someone else. The result is that only the top five per cent or so of employees can acquire financially independence (with high salaries) while the rest remained dependent and vulnerable all their lives.
To acquire these forgotten skills would require a change in mindset from one of being a worker (a worker’s mindset) to that of being a boss (an entrepreneurial mindset). The latter entails having a ‘Possibilities Mindset” which would enable one to know how to garner resources and knowledge and, to apply them to secure one’s own financial objectives.
Henry Ford, the car genius, once said that ‘money is not a man’s security; he is his own security’. What he meant was that a man’s security lies in his knowledge and skills. However, if your skill and knowledge is tied to working for someone then those skills and knowledge can be replaced any time.
However, Henry Ford is not wrong; if a man’s skills and knowledge is in the area of creating a money making enterprise. Robert Kiyosaki, a very successful entrepreneur, said that ‘every man must mind his own business’. He didn’t express it too well but what he meant is that ‘to have financial security a person must learn to develop his own money making business’. Is this possible? Every man? In my opinion, in today’ new reality, any worker who wants financial security has no other option!
Off course, whenever an uninitiated thinks of starting a business he thinks of big capital, connections, special knowledge and skills. For a man who has little money and has just lost his job, it’s even more unrealistic to think of starting his own business. However, many have done it, albeit, at great odds.
But what if you are not retrenched yet? And you have some time to learn. Could you invest in a money-making skill that can provide an alternative income? Could you learn to be an entrepreneur with little resources and connections?
The answer is yes but you have to adopt an entrepreneur mind-set; which really means that you to start believing in possibilities! Remember that when Bill Gates and Steve Jobs started their little enterprises in garages all they had mainly were their belief in possibilities. The amazing fact is that because of them the possibilities have increased exponentially with the advent of the internet.
Besides a strong belief in possibilities, an entrepreneur is one who learns to gather resources, knowledge and skills and organize them into money making processes. In most conventional businesses, this is usually a huge ask for any newcomer. Fortunately,, there are now other avenues where starting a business is made more possible for any one with little money and is prepared to spend time learning.
For example, the internet has made it easier to start your own business. The main thing you would need is a good PC, some affordable money, a willingness to learn and a lot of belief in yourself. What is to be learned is seldom difficult; a man’s limitation to success is often his own lack of self-belief!
If your motivation is create a secure financial situation for you and your loved ones, you need to be an entrepreneur. The days of secure employment is long over and moreover, personal wealth is seldom acquired by working for others.
See original here:
Entrepreneurship – A Panacea For Job Insecurity?
1. Simplify and get out of the rat race faster
I noticed that whenever I played the cashflow 101 game and was able to choose a “simple” profession like a truck driver for example, I was able to get out of the rat race faster.
As a truck driver, although my salary was low, my monthly expenses were also very low. Because I had low monthly expenses, I already had a positive cashflow and all I needed to do was just get those passive income generating deals.
After each payday, I had more money to invest, and with just a few passive income generating deals, I had enough passive income that exceeded my monthly expenses, and I was able to get out of the rat race faster.
In real life, I am applying the same strategy by reducing my monthly expenses by leading a simple life. This was also described by Bo Sanchez in his book “Simplify and Live the Good Life ” and T. Harv Eker in his book “Secrets of the Millionaire Mind”.
My family and I lead simple lives, which explains my very low target monthlypassive income which is why I know I am going to get out of the rat race in real life very soon!
2. Start with small deals first, and the big deals will follow
In the beginning of the game, I always chose small deals even if they produced little cashflow. Later on, when the market presents good opportunities, I was able to sell or “flip” these small deals and then I used the profit to buy the bigger deals that produced greater cashflow, allowing me to get out of the rat race.
In real life, I am also following the same path. I focus on single family homes or properties which may produce little cashflow at the very least, but can actually generate significant profits if “flipped” or sold through “rent-to-own”. I can then use the profit later when they are enough to get bigger deals that can produce bigger positive cashflow.
3. Over-leverage often leads to bankruptcy
During the game, we often encounter great deals that produce a lot of positive cashflow but require a big downpayment and it is tempting to borrow money from the bank just to be able to buy those great deals. However, there is such a thing as becoming over-leveraged which can produce negative cashflow situations because of the high monthly payments for those loans.
Even if one’spassive income is enough to cover the monthly payments for those loans, imagine if something happened and the monthly income of one’s investment properties were affected, suddenly the monthly payments for the loans cause a negative cashflow and can lead to bankruptcy. The same can also happen when one is downsized. This is the reason why one should avoid deals that lead to too much exposure or over-leverage.
Applying this is real life is a no brainer. I would not dare buy those multi-unit apartments unless they were in the same price range as the single family homes I focus on. As mentioned in lesson number 2 above, I can go for those bigger deals later when profits from my small deals are enough.
4. It is better to wait for a good opportunity than settle for those not so good deals
In the game, good opportunities come in the form of deals that have big ROI potential, and can be bought with little or no downpayment, while producing positive cashflow. If any of these elements are missing, I consider a deal as “not so good” and I pass them up and just wait for the good deals.
In real life, I do the same and patiently wait for good opportunities. If a not so good deal comes my way, I can either look for ways to make it into a good deal, or I just pass it up and wait for another more worthwhile deal to pursue.
5. Learn how to spot a good deal and grab it
One of the biggest challenges one faces in the game is how to spot those good deals so that you can grab them. Sometimes a good deal is right under your nose and it slips away because you didn’t realize soon enough that it was a good deal.
I believe spotting good deals is a skill and you can only learn this skill by continuously analyzing deals. Once you get the hang of it, you will start seeing those good deals more often. Normally those deals would have normally slipped away without you knowing it. If you see good deals often, it’s just logical that you will eventually grab one of those deals right?!
6. Learn how to protect your investments
I distinctly remember games where apartment buildings getting toppled by mud and all the cashflow generated by these properties are gone, unless I am covered by insurance.
Does Ondoy and Pepeng ring a bell? Who would have thought that a game like cashflow 101 actually teaches us to protect our investments from such disasters and calamities. Better get your investments insured with “Acts of God” coverage pronto!
7. Net worth is worth less, cashflow is king
Once you play cashflow 101, you will notice its emphasis on the importance of cashflow over one’s net worth. You will see that it really is more important to have positive cashflow frompassive income. What is the use of having a big net worth if you don’t have any positive cashflow?
In real life, we should apply this by focusing on building our positive cashflow with income generating assets. Even if we have to use leverage to buy these assets, it really is okay. We call this good debt. Don’t be afraid to have good debts that buy real assets that produce the cashflow we need to get out of the rat race for real!
Get out of the rat race in the game, and in real life!
So you got out of the rat race when you played cashflow 101. So what?! That’s useless if you don’t take action and apply the lessons you have learned from the game in real life. But playing a game is one thing, doing it in real life is an entirely different thing… or is it?
I can truly say that Robert Kiyosaki’s Cashflow 101 game is a “life changing” game because my life has really changed ever since I decided to apply in real life the lessons I have learned from it. Take note that I only listed the top 7 lessons I have learned and I can assure all of you that there are more lessons one can learn from this game.
People may find it hard to believe that one can learn so much from a game and can have such a huge impact in life. I guess you just have to play the game and experience it for yourselves.
How about you, have you played Rich Dad’s cashflow 101 game? What did you learn? Are you applying them in real life?
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Top 7 lessons I learned from playing Rich Dad’s Cashflow 101 game
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