Subprime Credit Cards: rules to be changed in favor of user

When people get into trouble paying off their debts they often cannot get regular credit cards, which can be very inconvenient.  In response to this, some banks set up special credit cards for those who have poor credit ratings.  Sometimes these cards are “prepaid” in that you have to put money into the account before you can charge anything, and you can never charge more than you have in the account at any moment. 

Prepaid cards are really more like debit cards which directly access your checking account and deduct the money when you make the charge.   I generally recommend debit cards over prepaid credit cards for those who can manage a checking account mostly because the fees on subprime credit cards are much too high.

Now, as part of the general tightening of regulations which we have reported on previously (see our previous articles on New Credit Card Rules and on Expected Restrictions on Card Rates), the charges on these credit cards will be limited, but not until 2010.  Credit card companies will no longer be able to charge you fees (such as membership fees, account opening fees and security deposits) in excess of 50% of the total credit limit during the course of the year, and the initial fee cannot be more than 25% of the limit.

This means that if they give you a line of credit of, say $500, they cannot charge you more than $125, total, when you open the account, including membership fees, account opening fees and security deposits; and these fees cannot exceed $250 during the first year.

Even these reduced charge are probably a lot more than you would pay with a checking account and a debit card, so that option will remain the first one to look at.

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