Changes to credit-card rules won't perfectly protect consumers

If you are expecting this month's changes in credit-card laws to smooth your love/hate relationship with your cards, don't.

This is no time to get naive.

Rather, advocates who fought for the package that passed in May say consumers will remain vulnerable to deceptive charges if they ignore mail from credit-card issuers as new rules take effect Monday.

The act "did a good job addressing some fundamental problems, but it was not a silver bullet," said Nick Bourke, credit-card analyst for the Pew Charitable Trusts.

Banks and other lenders that issue the cards are desperate to make up for lost fees as the new law stops certain moneymaking practices.

For example, the law bars them from setting payment deadlines on Sundays and penalizing people when mail isn't delivered. Another change generally keeps lenders from raising interest rates on existing balances, though rates could rise on new purchases, provided they send a warning of the change.

Consumers received a taste of this desperation in the last few months. Knowing that by Feb. 22 their interest income would be reduced, lenders raised rates, changed credit limits and dropped many customers.

Even those who pay on time were shocked by the changes lenders used to cut their risks and enhance revenue.

Now comes Phase 2. Analysts expect consumers to be hit with new fees, such as annual fees for holding credit cards and penalties for rarely or never using cards.

The law requires that people be notified clearly of changes, but many people ignore their mail.

John Ulzheimer, an analyst from Credit.com, said he asked a group of Federal Reserve officials, lenders and industry attorneys how many read their credit-card mail. Only about 3 percent raised their hands.

"It makes sense to read everything and speak up," said Bourke, because lenders can make changes with no response. Given the churn in the industry, he said customers might be able to talk a lender into other conditions now, but not later.

In addition, Bourke said, people should not be misled by the new law. It deals with how monthly payments cover charges, but does not stop a practice that leaves users in unending debt.

Though people often think that when they make monthly payments, their money is spread among their bills, that is not the case. Under the new law, if the person makes the minimum payment every month, the entire amount can go toward paying the charges with the lowest interest rates if there are multiple rates on the card.

For example, many people transfer charges to a card to get a zero percent interest rate. Yet they might have a 15 percent rate on other charges. Under the law, only money over the minimum can be put toward the higher-interest charges.

"Make sure you always pay more than the minimum" so you can whittle down the highest-interest rate debt, said Bourke.

In addition, Bourke warns people to watch their mail carefully for marketing that will look like a deal but is a penalty.

A favorite practice has been to tack on "over-limit fees" if people charge more than their credit limit. Lenders will no longer be able to do that without telling consumers and letting them decide they don't want to be allowed to go over the limit.

But this is going to be tricky, Bourke said, because he expects lenders to send customers notices that will make it sound like an opportunity to have "over-limit" protection. In actuality, they will be allowing lenders to charge fees of perhaps $39 any time they go over their limit.

Also be careful about closing an account. Doing so can lower your credit score.

Ulzheimer suggests a remedy: If you close one card, open another that allows you the same credit limit as the previous card. That will keep you from injuring your score.