by Joseph Kenny | 12/12/09

Credit card companies are under attack as consumers and the federal government question tactics used to charge consumers as much as possible in the way of interest rates and fees. This has been a hot topic for months now, before and after Congress passed the Credit CARD Act limiting when rates and fees can be charged.

Interestingly the Act does not limit the amount of interest and fees and that was all of a loophole the credit card companies needed to get ahead of the new rules going into effect in 2010. In Florida, a 91 year old woman was sent a letter by Citi informing her of a 10 percent increase in her credit card rate. With the increase, the interest rate became 29.99 percent.

As the woman’s daughter indicated, the 29.99 percent is shocking anyway you look at it, but it’s particularly shocking in view of the legislation passed that limits when companies can increase interest rates. What happened to the elderly woman in Florida is a clear signal from the credit card companies that they will do what is necessary to maintain current revenues. From their viewpoint a consumer voluntarily accepts a credit card with the knowledge the terms may change.

Credit card companies are facing record numbers of uncollectible balances and this is driving interest rate and fee increases. Faced with a new law that will reduce profitability the companies are trying to implement new terms before the law goes into effect. In addition to increasing interest rates they are also reducing credit lines.

You would think the credit line reductions would be applied to accounts with payment history problems but even consumers with good credit are seeing their balances reduced. In the face of what consumer advocate groups consider to be unfair and deceptive actions on the part of credit card companies, the House of Representatives passed a bill that would make the new Credit CARD Act effective immediately. The bill must now to the Senate where its fate is unknown.

What consumers can expect after the Credit CARD Act passes is a much more difficult time getting approval for a credit card. Many will see their cards cancelled or the credit limit reduced so low it’s hardly worth having the card. Credit limits are being lowered by an average of 26 percent.

There are currently 555 million credit card accounts open. The number of Visa, MasterCard, Discover and American Express cards has dropped by 72 million over the 12 months ending 30-September-2009. To date the credit card companies have written off approximately 10 percent of the card balances as uncollectible.

After the new Credit CARD Act takes effect, consumers can expect to see tighter credit and other changes as banks see profits drop in their credit card divisions. For example, more cards will be issued with annual fees and variable interest rates.

In the case of the elderly woman, the rate increase was due to two late payments. She had moved and the credit card statements did not reach her in time for her to make current payments. Though she clearly owed the money, it is exactly this kind of unforgiving stance of credit card companies that led to the Credit CARD Act.