WASHINGTON AND LOS ANGELES — New federal protections for credit card users go into force today, but in advance of the tougher rules, banks have been raising fees and interest rates -- hoping to ensure that one of their historically most lucrative businesses remains that way.
Since Congress approved the landmark credit card overhaul legislation last spring, many issuers of plastic have jacked up interest rates, switched accounts from fixed to variable rates, and raised annual fees and penalties for late payments. The actions are helping banks lock in revenue ahead of the new restrictions under the Credit Card Accountability, Responsibility and Disclosure Act.
Since April, the average variable rate on new cards has risen steadily to 11.22% as of this week from 10.69%, according to Bankrate.com, a consumer finance website. This comes even though the prime rate, the index to which card rates are generally pegged, hasn't moved in that period.
"It seems [banks] are getting their shots in while they can," said Greg McBride, senior financial analyst at Bankrate. The sweeping actions by banks -- which must now give customers at least 45 days' notice when making a significant change -- signal a profound shift in the way banks and consumers deal with plastic. Bankers and others have argued that the new law will further crimp consumer spending by leading to reduced access to credit and higher interest rates for cardholders, thus hurting an economic recovery.
Consumers say they are already feeling the pinch of higher credit card fees.
Melody Davenport, 44, of Stockton says the rate on her credit card issued by JPMorgan Chase nearly doubled this summer to around 11%. She says she is carrying a balance of about $12,000 on the card, which means Davenport is now paying an additional $50 a month in finance charges.
"It's hard, because when I make payments now, the principal doesn't go down," she said. "I'm not real happy."
A spokeswoman for JPMorgan Chase, the largest issuer of credit cards, said the bank could not comment on a specific account. Nor would Chase say how many of its cardholders had been hit with interest rate increases in recent months.
"Changing costs are requiring Chase to more closely examine the rates and terms we offer our customer," Chase spokeswoman Stephanie Jacobson said in an e-mail. She said the bank had not increased late-payment fees.
