Humberto Cruz

What a shame. For people who handle credit responsibly, new credit card regulations that went into effect Feb. 22 actually hurt more than help.

I'll tell you why, and what we can do.

The new rules, part of the Credit Card Accountability, Responsibility and Disclosure Act passed by Congress last May, are intended to protect cardholders and end abusive industry practices.

For example, card payments must now be applied first to the highest-interest rate balance. "Double-cycle" billing, which results in higher interest charges, is no longer permitted.

Interest-rate increases on existing balances are for the most part prohibited, as are rate increases on new purchases the first year on a new card. After the first year, card issuers must give 45-day notice before raising rates on new charges.

That's all terrific but it does nothing for financially prudent people who pay their balances in full each month. Instead, the law is prompting card issuers -- who need to make a profit to be able to grant us credit -- to raise other fees for everyone to make up for an estimated $12 billion in lost revenue.

In essence, "those who manage their credit well will end up paying for those who don't," said Nessa Feddis, an American Bankers Association vice president.

To be fair, some new rules benefit everyone, including prohibiting fees for the way bills are paid (such as by telephone) and eliminating confusing cut-off times for receipt of payments. (For a rundown of the rules, check out the Federal Reserve's Web site at

Still, by making it more difficult for card issuers to charge more to those who pose a higher risk of default -- and defaults are running about 10 percent -- the new rules lead to an inevitable result.

"Everybody is going to feel the higher cost," said Kenneth Clayton, a senior vice president for the bankers group. Examples include more annual or inactivity fees, fewer or reduced rewards program and, for those who carry a balance, higher interest rates.

"We seem to be going from a marketplace in which a relatively few cardholders got into deep trouble to one in which the misery is more evenly spread," said Adam Jusko, founder of, a card information and comparison site.

Even those with outstanding credit are being affected. "I am livid," said a reader whose Citi card will start charging a $60 annual fee (more on that later). "I canceled it immediately," he said. "Here I am with an 800-plus credit score and this is how they treat me?"

That's the way indeed. "The new law does not address or cap non-penalty fees like annual fees or inactivity fees, which may become more common for those who do not carry a balance," said Ben Woolsey, director of consumer research at, another consumer-oriented Web site.

"Fees, fees and more fees" are an unintended consequence of the new rules, said Bill Hardekopf, CEO of, another card-comparison site. Fifth Third Bancorp imposed a $19 inactivity fee if a card is not used during a 12-month period. Citi will begin charging the $60 fee to some customers in April, but will waive it if they charge at least $2,400 a year.

What to do? Comparison-shop for the best deals -- there are still many -- using the sites mentioned above. As Clayton of the ABA said, "no customer is a prisoner to their card" and can switch to a better one.


Personal Finance - New Credit Card Rules Triggering More, Higher Fees

© Humberto Cruz


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