For some people in financial turmoil, getting a new credit card from First Premier Bank is like being kicked while you’re down.

First Premier Bank, based in Sioux Falls, S.D., markets its credit cards to consumers who are financially troubled and have poor credit perhaps due to an illness, a death in the family or a divorce. While other banks may reject their applications for a credit card, First Premier accepts them and gives people in financial turmoil hope of improving their credit rating. But then it socks them with high fees and onerous interest rates, making it hard, if not impossible, to get out of debt.

There's nothing wrong with that, according to Miles Beacom, the chief executive of Premier Bankcard, a sister organization of First Premier Bank. “It’s no different than high-risk car insurance,” Beacom says. “If they had accidents in the past, they’re going to have to pay a premium.”

And a hefty premium it is. Many of First Premier’s cards come with a credit limit of only $300 (though some can be as high as $1,000) and myriad fees—annual and monthly, as well as “one-time” fees that can add up to as much as $170 in the first year and $120 in subsequent years.  That means that in the first year, cardholders with a $300 credit limit have a net credit limit of only $130.

On top of the fees, First Premier charges a 36 percent interest rate on card balances—more than double the national average credit-card rate of 15 percent, according to CreditCards.com. Its rates are high even when compared to the national average rate of 22.73 percent for people with bad credit.

Don't get ripped off. Read our credit-card buying guide before applying for your next credit card.

“First Premier is one of the worst credit-card issuers out there in my opinion,” says Chi Chi Wu, an attorney at the National Consumer Law Center, a nonprofit policy and advocacy group based in Boston. “Besides the high fees, it is aggressive in trying to keep charging those fees.”

First Premier sues CardHub

In April, First Premier Bank filed a $5 million lawsuit against Evolution Finance, based in Washington, D.C., and its chief executive officer, Odysseas Papadimitriou. Evolution Finance operates a CardHub, a site where you can compare credit-card fees, interest rates, and reward programs across more than 1,000 credit cards. In the lawsuit, First Premier demands that CardHub remove details about its credit card, claiming that an earlier relationship, where First Premier paid CardHub an $8.50 referral fee per new applicant, was now over. CardHub, though, has refused, keeping the bank’s rates  on its site to provide consumers with comparative credit-card information. We called both companies but neither would offer "on the record" statements about the lawsuit to Consumer Reports. Beacom, however, did say that his company needs to retain control of its product.

That control though, could mean making it difficult to find the terms of its credit cards anywhere but on First Premier's own website. “It wouldn’t surprise me at all if First Premier is just trying to silence CardHub,” Wu says.

Five years ago, the Credit Card Act of 2009 was passed as a way to end the worst credit-card abuses. No longer would unsuspecting consumers be as easily victimized by money-hungry banks.  

After the Credit Card Act was passed, First Premier began charging consumers a 79.9 percent annual percentage rate—a rate so high it made headlines, including on our sibling site Consumerist.com.  (The Credit Card Act didn't restrict the APR, but it did put limits on subprime credit cards with low credit limits and high fees.)

First Premier later lowered the rate (though it remained high), and increased the fees it charged in order for potential customers to open an account. Such upfront fees seemed like a nifty way to get around the limits placed by the Credit Card Act of 2009, but the federal government deemed them part of a consumer’s first year’s costs, and thus violated the Credit Card Act. In 2011, First Premier responded by suing the Fed and to the surprise of many, won the case.

Meanwhile, consumers with poor credit found themselves in an even worse financial predicament than when they first signed up for a First Premier credit card. According to the lawsuit that First Premier filed against the Fed in 2011, roughly 40 percent of First Premier's charges, fees and interest owed is never paid.

Time will tell whether CardHub can continue to post First Premier’s rates on its site—clearly a useful service for consumers. It's notable that two similar credit-card comparison websites, NerdWallet and Credit Karma, do not provide First Premier’s fees, rates and terms on their sites. 

Bottom line: Be aware that there are aggressive banks just aching to sign you up for a very expensive credit card.  If you are in the market for a credit card—any kind of credit card—scour the terms before applying.

What you can do

Look for alternative cards. If you need to start rebuilding your credit, look for cards besides those offered by First Premier and other such banks. You’ll find, if you have poor credit, that just about all cards available to you come with high interest rates, though not as high as the rates charged by First Premier. The Capital One Secured Card, for instance, carries an APR of 22.9 percent, a low annual fee of $29, and a credit line of $200 to $3,000 depending on much you put down as a deposit.  

Consider a credit union.  Even if you don’t have financial difficulties, consider getting a credit card from a credit union instead of a bank. Fees and interest rates tend to be lower.

Read the fine print. It can be difficult to understand what you are signing up for, what the fees are, and when payments are due.

Know your rights.
If a fee is listed, there must be a reason for it as well. There can’t be any hidden fees and other terms, such as the grace period and the annual percentage rate, must be spelled out. If you sign up for a card that is being promoted because of its rate, that rate must remain in effect for at least 6 months. Don’t accept an interest rate increase unless you have been given 45 days notice.

—Nikhil Hutheesing


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