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79.9% Credit Card Interest is Legal – What About a HELOC?

With the new credit card laws that are being enacted, card issuers that previously could charge almost unlimited fees for the use of the card will be limited to 25% of the credit line.  Consumers who were looking to rebuild their credit scores would sign up for high fee/low limit cards to rebuild their credit history.  What they may or may not have calculated was that the fees actually brought the cards into 80%+ effective interest rate territory, though technically the fees weren't interest.

Now, new laws are capping the fees, but interest rates on nationally issued cards can, in some cases, go sky high.  One bank is running a test promotion, offering a $300 limit card with the maximum $75 (25%) fee, and a whopping 79.9% legal interest rate.  What's interesting is that they say their response rate, acceptance of the card, is running around 2%, greater than their normal 1.2% acceptance of more normal cards for better risk customers.  This could be a trend in the future, making credit cards very difficult to get at affordable interest rates for anyone with sub-par credit scores.

Though all credit is tighter, and even though many homeowners are under water, with their mortgage balances higher than their home values, there are still people out there with equity in their homes.  If their credit scores and debt-to-income ratios are good, they may be able to get a HELOC (Home Equity Line of Credit) loan to pay off cards that might start escalating rates under the new laws.  It's certainly worth checking out.

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