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As subprime credit cards grow, so do fees

By
Kevin Dugan
Published Dec. 3, 2015, 2:06 a.m. ET

There’s a growing subprime threat — and it fits in your billfold.

The number of subprime credit cards in circulation — those with the highest interest rates — has exploded over the last five years to where in 2014 there was one issued for every subprime borrower, according to a government report due out Thursday.

In 2009, there was one subprime credit card issued for every 2 ¹/₂ subprime borrowers, the report reveals.

“These subprime specialists derive over half their revenue from fees, with much of that revenue coming from application or origination fees,” Richard Cordray, director of the Consumer Financial Protection Bureau, which is expected to release the study on Thursday, said in prepared remarks.

“These cards put many consumers at risk by eating up their monthly payments with fees and interest charges that impede them from paying down their principal balance.”

While riskier borrowers were likely to have at least one subprime credit card in 2014, only 40 percent of those people got these kinds of cards in 2009, according to the report.

“Ever since the financial crisis, credit card issuers’ appetite for lending on an unsecured basis has been almost exclusively geared toward cardholders with low risk profiles,” Greg McBride, analyst at Bankrate.com, told The Post.

The CFPB report takes a look at the Credit Card Accountability Responsibility and Disclosure Act, which was signed into law in 2009 by President Obama and was aimed at tamping down hidden costs of owning a credit card.

The CARD act succeeded in cutting the amount of late fees, penalties and how often banks could jack up rates, according to the CFPB.

Over all, fees and penalties on credit card holders have dropped by about $16 billion since 2011, according to a CFPB report.

While the CARD act did not cause the rapid rise in the number of subprime credit cards in circulation, the CFPB report notes the concurrent increase in the high-cost plastic.