Last May 22, 2009, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 was put into effect. Otherwise known as the Credit Card Act of 2009, this law was put into place to stop banks from taking advantage of consumers. It is basically designed to end the days of “unfair rate hikes and hidden fees.” Unfortunately, the actual effect of this law was not exactly what the President and Congress have hoped for.

Since it was signed into law, the big banks have thought of innovative ways to get around it. Major credit card insurers significantly revised their terms and conditions of use. Numerous consumers reported that instead of going down, some companies have even raised their fees, increased their interest rates, and restricted credit card benefits in anticipation of the Credit Card Act going into full effect.

For example, Chase has increased the minimum required payment to 5 percent from 2 percent. Meanwhile, other card companies have increased the balance transfer fees to 5 percent though it used to be offered for free in the past. In addition, credit card limits continue to go down while interest rates continue to climb. All these raise a crucial question – how did a law that was designed to protect the consumers have an opposite effect?

There are two issues in the provision we should look into:

Interest Rate Hikes – the new law significantly hinders the ability of card companies to increase their interest rates on outstanding balances. There are only three circumstances in which the balances can be increased: (1) when introductory rate ends, (2) minimum payment remains unpaid 60 days after the due date, (3) and when the underlying index that was used to determine the interest rate changes (variable rate).

Given this, it comes as no surprise that credit card companies would take advantage of the loophole extended to them in the system. Fixed rate credit cards are now becoming outdated as card issuers try to minimize their risk. Variable rates will insulate their portfolio from unnecessary risks while ensuring their continual profitability.

Balance Transfer – there are currently a lot of no-interest balance transfer offers in the market today. But the new law changed all that. Previously, when a consumer makes purchases at regular interest, his payments above the minimum are allotted to the no-interest balance transfer. As a result, consumers will actually pay interest on his purchases (those with regular interest) until the whole balance is paid.

From a policy point of view, the Credit Card Act is good because it requires excess payments to be allocated to the loan with highest interest rates. But consumers are actually paying a steep price for this now because the introductory 0 percent offer is no longer offered as widely as it once was. And the balance transfer fees have steeply gone up.

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