The head of Sioux Falls-based Premier Bankcard said the company is "extremely disappointed" with a new federal rule that limits fees charged on credit cards offered to high-risk borrowers.

The so-called subprime cards available to those with low credit scores typically have no more than a $500 credit limit but require a large, up-front fee.

The rules cap that fee at 50 percent of the credit limit and allow the cardholder to pay off the initial balance over a year, not immediately.

Gov. Mike Rounds said last week the new rule could cost the state 3,000 to 5,000 jobs.

The fees are a critical part of Premier Bankcard's business model, and the federal rule imposes "unprecedented price controls," said Miles Beacom, president and chief executive officer of the company.

"Our customers look to us to provide them with critically needed access to credit," Beacom said in a prepared statement. "In today's turbulent national economic credit crisis, we do not understand why the Federal Reserve would choose to further restrict credit to millions of Americans."

The company won't make any immediate business decisions or staffing changes as a result of the rules, which were approved Dec. 18, but it will "fully examine the new rules and explore options that would allow us to continue to serve millions of creditworthy individuals across the country," Beacom said.

U.S. Rep. Stephanie Herseth Sandlin, D-S.D., is reviewing the rules, according to her spokesman, Russ Levsen.

"Congresswoman Herseth Sandlin and her office are closely examining the final rule to evaluate the potential impact on businesses, employees and consumers in South Dakota," he said in an e-mail. "She will continue her work with Governor Rounds and South Dakota's Congressional delegation to ensure that credit card rules guarantee fairness and transparency to consumers and preserve necessary access to credit."

Sweeping changes to credit card rules

The rule is one of several sweeping changes approved by federal regulators and is meant to shield consumers from the fees and increases in interest rates on existing account balances, among other changes.

The rules, which won't take effect until 2010, were approved by the Office of Thrift Supervision, a Treasury Department division, as well as The Federal Reserve and the National Credit Union Administration. The changes mark the most sweeping clampdown on the credit card industry in decades and are aimed at protecting consumers from arbitrary hikes in interest rates or inadequate time provided to pay the bills.

John Reich, the thrift agency's director, said the rules "will enhance public confidence in financial institutions and establish a level playing field for institutions that want to do business fairly without suffering competitive disadvantages."

Most of the rules were first proposed in May and drew more than 65,000 public comments - the highest number ever received by the Fed. They also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates.

But the changes also could make it more difficult for millions of people with bad credit to get what is known as a subprime card carrying higher interest rates, some experts say.

In addition, consumers will have to be given 45 days' notice before any changes are made to the terms of an account, including slapping on a higher penalty rate for missing payments or paying bills late. Under current rules, companies in most cases give 15 days notice before making certain changes to the terms of an account.

The changes could cost the banking industry more than $10 billion a year in interest payments, according to a study by the law firm Morrison & Foerster.

About 16,000 companies in the U.S. issue credit cards. The biggest lenders include Discover Financial Services, Bank of America Corp., Citigroup, JPMorgan Chase & Co., Capital One Financial Corp., American Express Co. and HSBC Holdings.

The head of the American Bankers Association called the changes "strong new regulations … (that are) unprecedented in their scope and signal the beginning of a new market structure for credit cards."

"While the new rules are designed to increase protections for consumers, the Fed itself has recognized that they may result in increased costs for most card users and reduced credit availability, particularly for consumers with lower credit scores or limited credit history," ABA president and chief executive Edward Yingling said in a prepared statement. "With the uncertainty facing our financial system, it's absolutely vital for policymakers to understand the full impact of these regulations on consumers and the economy before judging their success or further restricting the marketplace."

The new rules prohibit:

* Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay.

* Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account.

* Unfairly computing balances in a computing tactic known as double-cycle billing.

* Unfairly adding security deposits and fees for issuing credit or making it available.

* Making deceptive offers of credit.

Travis Plunkett, legislative director of the Consumer Federation of America, said customer frustrations run deep, as reflected in the comment letters submitted to the Fed.

Many of them "were spontaneous from consumers who feel they've been treated unfairly by their credit card companies and are literally begging the Fed for help," he said.

Many people acknowledged paying late, often mistakenly, and felt it was unreasonable for their card issuer to increase the interest rate on the balance, Plunkett said. Another common theme came from people who pay on time but are hit with a rate increase because the company needed to recoup losses from other cardholders, he added.

Under the new rules, credit card lenders will be required to apply any payment above the minimum to the part of the balance with the highest interest rate.

The Consumer Federation estimates that credit card debt held by U.S. consumers is about $850 billion, about four times what it was in 1990.

The Associated Press contributed to this article.