Check Your Revised Credit Card Terms

The new law is supposed to protect consumers by providing more information on what credit cards really cost. According to , “The law that President Barack Obama signed last May shields card users from sudden interest rate hikes, excessive fees and other gimmicks that card companies have used to drive up profits. Consumers will save at least $10 billion a year from curbs on interest rate increases alone, according to the Pew Charitable Trust, which tracks credit card issues.”

That’s the good news. The bad news is that the law also forced credit card companies to change the way they operate in order to continue to make a profit.

Many added annual fees, which were common ten years ago but largely went away during the 2000’s. “During the final three months of last year, 43 percent of new offers for credit cards contained annual fees, versus 25 percent in the same period a year earlier, according to Mintel International, which tracks marketing data. Several banks also added these fees to existing accounts. One example: Many Citigroup customers will start paying a $60 annual fee on April 1.”

Many credit card companies raised interest rates or changed to variable interest rates which increase with the market. Some started charging new fees, like paper statement fees or inactivity fees. And many have increased existing fees, like ATM or transfer fees.

Banks have also made it harder to get a credit card. New banking regulations have forced banks to reduce risk. One way of doing that is eliminating higher risk customers from their portfolios. Another way is to reduce credit limits for many customers, like those with subprime credit scores (generally considered to be below 660), college students and those less than 21 years old. It will definitely be harder to get credit now for customers with a higher risk profile.

So how do you protect yourself from these cost increases? I don’t recommend this but if you maintain a high balance on your credit card account and pay interest every month to your credit card company, they are more likely to leave you alone. That’s because a customers that maintain high balances on their cards are the most profitable type of customers to a bank. That is also the costliest option for you, which is why I recommend against it.

This is the side of new regulations on business that many lawmakers overlook and consumers don’t anticipate. Companies need to make a profit and they will find a way to do so or go out of business. Banks are no different. If their normal sources of income are eliminated or reduced, they will adjust to modify the way they operate to add new revenue streams, eliminate unprofitable customers or get out of the business altogether. Those options often harm the very customers lawmakers claim they are trying to protect.

So, start looking at the revised terms your credit card company sends you and has sent you. There are still many options out there for people with good credit. Maintaining a strong credit history is important if you want to buy a home. Banks will be happy to lend to consumers with high credit scores and those consumers will find the cost of loans to be lower than similar customers with weaker credit histories.