Think twice before you throw away unread notices from your credit card issuer in coming weeks.
So many banks have scrambled to hike interest rates and fees ahead of the enactment of a new consumer protection law for credit card holders that legislators voted Wednesday to move up the law's effective date.
Reps. Barney Frank, D-Mass., and Carolyn Maloney, D-N.Y., co-sponsored the original Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 that President Obama signed into law in May, as well as H.R. 3639, a separate bill passed in the House on Wednesday that would move up the implementation of reforms from Feb. 22 to Dec. 1. It now goes to the Senate.
A few of the original law's minor provisions took effect in August, but most of the changes are set to be enacted in February. Among its many reforms is banning retroactive rate increases on existing balances unless a card holder is more than 60 days behind on payments, and eliminating "bait and switch" tactics by requiring that terms for new card holders remain stable for the first year.
The California Attorney General's Office has seen "a significant jump in complaints and inquiries about credit card companies increasing their rates" in the run up to implementation of the law, said spokesman Evan Westrup.
The acceleration was absolutely necessary, said Donna Severs, chief executive officer of Bakersfield City Employees Federal Credit Union, which has not changed the terms of its Visa cards in years.
"Unfortunately, I think a lot of people, some of them predatory lenders, were rushing to circumvent the intent of the law by putting in place exactly the kinds of changes that the law would make illegal," Severs said.
Banks typically notify customers when credit card agreements change by enclosing a legal notice with a monthly statement or by mailing a separate letter. But many consumers toss such mailings without reading them, so the onslaught of new fees and rate hikes has caught some off guard.
"There are all sorts of changes taking place with issuers right now and consumers need to be paying really close attention," said Bill Hardekopf of LowCards.com, a Web site that helps consumers compare credit card offers.
Since the original credit card bill passed in May, some banks have increased foreign transaction, cash advance and balance transfer fees, hiked interest rates and converted fixed rates to adjustable rates.
"At the very least, consumers need to read the fine print and be aware of what their current terms are so when they get these notices, they will know what's changing," Hardekopf said.
It's not surprising that many banks are choosing to revise credit card agreements, said Beth Mills, spokeswoman for the California Bankers Association.
"Interest rates are one way that credit card issuers price risk," she said. "It's not like a mortgage or auto loan where there's collateral to back up the loan. A credit card is basically an unsecured loan.
"Now that one method of pricing that risk will soon be gone, they're looking at other ways to protect themselves."
That's particularly critical now, Mills said, when a soft economy and high unemployment have caused large numbers of borrowers to miss payments.
Some bank strategies for recouping potential losses have not gone over well.
In April, Chase Bank dropped the $10 monthly service fee it had added to more than 184,000 credit card accounts as part of a settlement with the office of New York Attorney General Andrew Cuomo.
Chase also agreed to refund more than $4.4 million to affected consumers.
Also in recent months, Chase converted some of its fixed-rate cards to adjustable rates.
Bank of America announced last month that it would not boost its credit card interest rates again before February unless the borrower missed two or more payments in 12 months.
Fees are another matter.
"We are testing an annual fee on a very, very limited number of consumer credit card accounts -- about 1/2 of 1 percent of our consumer accounts in the U.S. -- but have not made any final decisions about if or how we may apply annual fees going forward," said Bank of America spokeswoman Betty Reiss.
Wells Fargo notified cardholders in October that most will see interest rates climb up to 3 percent effective Nov. 30 . On fees, it's keeping its options open.
"We may introduce new fees in the future in order to keep credit flowing," said spokeswoman Julie Campbell. "We are reviewing various possibilities."
Kern Central Credit Union hiked increased rates on some cards in October, but said the timing was not related to the new law or delinquencies.
"We do quarterly surveys and found we were below market," said chief executive officer Carl Trejo.
Such increases aren't a sign that competitive rates are extinct, said Odysseas Papadimitriou of CardHub.com, a consumer Web site for comparing credit card offers.
"They won't be charging all of us 16 or 20 percent or whatever," he said. "What you'll see is a lot more initially low promotional offers that jump up after six months or a year or two. That gives them some flexibility if the economy isn't going well or they miscalculate how risky a customer is."
It's important for consumers to stay on top of when those promotional rates end, because in some cases banks charge interest retroactively if the balance isn't paid off by the expiration date.
"Don't take these offers thinking you'll just move the balance to another card when it expires," Papadimitriou said. "Take them with the intention of paying them off by then."