New rules encourage credit card issuers to raise rates and fees

Millions of Americans will be paying a whole lot more interest on their credit card balances as credit card companies rushed to raise raise rates before the first changes in credit laws take effect this week.

Starting this week credit card issuers must mail bills 21 days rather than 14 days in advance and they must give 45 days notice before raising interest rates. Before the Credit Card Accountability Responsibility and Disclosure Act (CARD) went into effect credit card companies only had to give a 15-day notice of a rate increase.

Often by the time people received the notice there wasn't much time to protest. When you do protest, you have only one of two options -- pay off the account or lock in the current rate and agree to close the account.

In the past few months credit card companies have been racing to raise interest rates on millions of credit card holders. People with cards from American Express, JP Morgan Chase, Citigroup, Discover, Capital One and others have been reporting increases even if they've never made a late payment and have excellent credit scores. Anyone who carries balances from month to month will see the credit card costs increase.JP Morgan Chase just changed the rules on people carrying balances of $5,000 or more. Rather than being required to pay 2.5% of their balances each month they must now pay 5%.

For people who have lost their job this just puts even more strain on their budget and will push them even faster toward bankruptcy. Individual bankruptcies are up 36% for the first half of this year compared to last year.

As credit card companies make these changes their default rates continue to go up. Bank of America reports the highest default rate at 13.8%. Others including Chase, Citigroup, Capital One, Discover and American Express report default rates at around 10%.

Many credit card issuers are getting rid of fixed rate cards completely and instead offering variable rate cards set to an index. That way they don't have to send notices at all. As the index rate goes up so does the credit card rate. That's another way they can avoid the protections in the new law.

Now that the first changes have gone into effect you can expect credit card companies to look for ways to avoid the law changes that takes effect in February 2010. These include:

* A ban on marketing to students under age 21 unless their parent co-signs or the credit card company has proof the student earns enough to pay the bill.

* If there is a an interest rate hike it cannot be applied to an existing balance.

* If your card has balances at a variety of rates payment must apply to the portion with the highest rate.

* Many credit card companies charge fees if you go over your balance. Under the new law they must allow you to opt out of this practice. You can insist that instead the company refuses a charge.

* Double cycle billing will be banned. With this practice credit card companies used to use your average daily balance from the current and previous month to calculate finance charges.

Changes to gift cards will take effect next summer. After the changes take effect gift cards must be good for at least five years. Right now many expire after one year and some in even less time. Also there will be limits on the fees that can be charged on dormant or inactive gift cards.

Also expect to see more fees added on to your account. For example, some cards are starting to charge a fee to reinstate rewards points if you are late on a bill. I'm sure they'll find other fee innovations before the new law takes effect in February 2010.

Work to pay off your balances. If not, you can be certain that by February 2010 you're credit cards will be costing you even more in interest and fees than they do today.

Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Improving Your Credit Score."

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