Credit-Card Law a Consumer Benefit with Bugs

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Being 60 days late could be especially costly for consumers. Currently card companies impose penalty rates averaging about 28%, or double the average standard rate. But that could rise to 30% or 35% as the companies scramble to make money where they can, said Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health Group.

TIGHTER CREDIT: Consumers with lower credit scores will find it harder to persuade strapped card issuers to give them credit because of the new regulations. Even those with respectable credit histories may have difficulty getting approved for new cards or find their credit limits lower than in the past. That means more people may resort to payday lenders and pawn shops, said Greg McBride, senior analyst with Bankrate.com.

CUTBACK IN REWARDS PROGRAMS: Card companies have long used reward programs to retain customers' loyalty, giving them cash-back rewards, frequent-flier miles, and other perks. Now they won't be able to subsidize those programs when they are not making as much from finance charges and penalty fees under the new regulations. Industry officials' threats during the lobbying process to cut them back sharply could prove to have been a bluff, but analysts and consumer experts still expect them to be trimmed to some extent.

SMALLER CARD ISSUERS MAY VANISH: Six mega-companies issue 80% of all credit cards: American Express, Bank of America, Capital One Financial, Citigroup, JPMorgan Chase, and Discover Financial Services. They are unlikely to pull back from the business because of the new law. But some of the smaller banks and issuers that make up the other 20% are likely to stop issuing cards. That's because of both the administrative costs of implementing the required changes and the inability to raise rates in some cases, according to Mike Brauneis, managing director for Protiviti, a business consulting and auditing firm.

The bottom line of the whole reform effort is that despite the big strides forward taken by the new law, it doesn't abrogate consumers' responsibility to handle credit-card debt cautiously and read the fine print of their monthly statements. "Certainly it's not a silver bullet," Brauneis said, "to keep consumers from getting in over their heads with credit-card debt."