Credit Card "Relief" Is Here

New credit card industry regulations went into effect February 22, but Congress' "cure" has some serious side effects, and customers are already feeling the pinch.

Last year, Congress passed a law banning some of the credit card issuers’ favorite revenue generating tactics, including any-time, any-reason rate increases and shortened grace periods. Those rules went into effect on February 22, but many credit card holders may find that the “cure” has some serious side effects.

Some banking experts estimate that the new rules will cost the industry upwards of $12 billion a year and banks are loading up on new fees and charges to make up for that lost income.

Many consumers have already felt the pinch as banks upped rates before the law went into effect. Minimum payments were also hiked for many credit card holders and banks that once touted no-annual-fee cards added annual fees. Expect more of the same, say consumer advocates, adding that interest rates may continue to climb.

Even though Congress imposed a 45-day advance notice on rate increases, it didn’t cap rates, so there’s no limit on how high they can go. Another ploy is to link rates to an index like the prime rate. As long as the bank notifies you when the change is introduced, it can change rates whenever the index rate changes without notifying you again.

In addition to imposing annual fees, banks are also introducing new or higher fees on some services. You’re likely to pay more for purchases you make in a foreign country, and banks are also expanding the definition of foreign-exchange transactions to include those made in a foreign country even if the purchase is in US dollars. Reward programs are also being curtailed, with shorter expiration periods and higher redemption fees.

Your best bet here, say consumer gurus, is a cash-back card. For a complete rundown on the new rules, visit the Federal Reserve Web site.