Tagging along with Credit Card Reform: More Fees, Higher Interest Rates, and Less Credit Period

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The final step in the Credit Card Accountability, Responsibility, and Disclosure Act (or CARD) goes into effect today. That final letter in the acronym is key: Consumers get a lot more disclosure as to rate changes and fee increases (you must be give 45 days notice) and how long it would take you to pay off your balance by making only the minimum payment (few folks in debt ever wanted to do that kind of math on their own). As to the two middle letters in that acronym, the law’s effects are limited. It’s really still up to the consumer to be accountable and responsible.

While the CARD act was created to help consumers—and in many ways it does just that—the law has also resulted in quite a few ugly unintended consequences, as a LowCards.com post said.

The card companies have had months to prepare to not only get up to speed with the law, but to counter it with new money-making strategies. Fixed rate cards, for example, have all but disappeared. If you had a card with a fixed interest rate, chances are your card issuer has been changed it to a variable rate. And chances are it has hit various interest rates such as 15%, 23%, even 29.99%. The average APR is about 13.50%, up from 11.50% one year ago, in pre-CARD act times.

Another of the card issuer’s counterstrategies is even simpler than raising interest rates: They’re charging you money to use the cards. According to a WSJ story, 35% of credit cards now have annual fees. Not long ago, roughly 20% of cards had annual fees.

Oddly enough, card issuers may also be charging you money to not use their cards—via an “inactivity fee.”

Balance transfer fees, which were typically 3%, are now often assessed at 5%. The WSJ reports that some card issuers are instituting an unheard-of application fee—which cannot exceed 25% of your credit limit (a potentially huge figure), and which is assessed whether you’re given a card or not. In some cases, the nickel and diming continues via a $1 monthly fee for receiving a paper statement in the mail.

You get the idea. The banks and credit cards are not just taking reform lying down. They’re swallowing the provisions that they have to swallow, and then they’re using those provisions as justification for adding and upping new fees and rates. It’s like one big game of fee whack-a-mole, with new charges popping up just as old ones are banished.

Another unintended consequence of the CARD act is that tens of millions of credit card customers saw their accounts closed, often without warning. The law forced card issuers to do some new math in figuring out what kind of worth doing business with, and many consumers didn’t measure up. As of last September, there were 72 million fewer cards in the U.S. compared to a year prior.

Likewise, card issuers had scaled back what had seemed like a constant onslaught of enticements to attract new cardholders. The number of junk mail solicitations fell by 71% in the third quarter of 2009. Capital One, for instance, sent out just 200,000 solicitations in the third quarter. But before you think it’s safe to go back to your mail box … Card offers sent in the mail soared in the fourth quarter, when Capital One mailed out 13 million solicitations.

So the temptation is there.

Overall, what the CARD act really does is it that it takes away your excuses. Because of the new disclosure requirements, you can no longer blame card issuers’ sneaky practices for your $8,000 balance. You can no longer use the excuse that you had no idea that your rate had jumped, or that you had no idea how dumb it was to just be paying the minimum balance.

Along with requiring that you receive fair warning to rate increases, the CARD act gives you the option of just saying no to the increase. The catch is that you won’t be allowed to use the card anymore. But that’s really the only way you can take charge of the situation.

That’s part of being accountable. That’s how to act responsibly.