by Joseph Kenny | 11/13/09

There has been a lot of talk about the new US federal law going into effect that will change the way banks assess fees including the allowable interest rates. The goal is to make credit cards more manageable for consumers and less subject to the whims of the banks. In many ways this law is long overdue, but it took a recession to get the problems with credit card companies addressed in a serious manner.

Unfortunately it is entirely possible the whole plan will backfire. The law will go into effect as planned, but it could very well end up costing consumers even more than they pay already. This is not the intended consequence of the new law of course, but that doesn’t change the fact it could be the real consequence.

How is this to happen? Credit card companies are already busy adding new fees to accounts, increasing interest rates, and generally making it more difficult to obtain a credit card. Banks are in the business of making money, and they are going to do everything possible to offset potential income losses by adding new fees such as annual fees that went out of favor a while ago.

But there could very well be other consequences also. For example, credit card monthly statements might begin demanding payment within 21 days after statement mailing as the law allows. Right now most accounts give consumers up to 30 days to make payments but after the law becomes effective the banks will need to make up for lost revenue.

The reason these consequences could happen is because the new credit card law makes some changes to how and when banks and financial institutions can charge fees or interest. For example, interest rates can only be increased under certain conditions and not just when the bank feels like doing so. Interest rate increases will be allowed after the end of a promotional rate period or if a late payment is made by the consumer. Of course, if the account was opened with a variable interest rate agreement then the interest rate can be increased.

But what cannot happen anymore is a retroactive application of an interest rate increase on card balances. In addition, the company will have to tell the account owner at least 45 days ahead of time that the interest rate is changing. This gives the account holder time to pay off the account and cancel the card if desired.

There are other changes too. Consumers must agree to the over-limit fees. Right now people use their credit or debit cards, and when going over the allowed balance, the account is charged an over-limit fee. Right now banks are charging the over-limit fee even if the consumer did not ask for the service.

There is yet another change that will benefit consumers balancing debt loads. The interest charges will be calculated based on the current period charges instead of the previous balance plus current period charges. This change alone could significantly impact the amount of revenue banks generate from credit cards.

There are many more changes in the laws that are intended to benefit consumers. But as people are already commenting on, the banks are not going to accept these changes without looking for ways to replace the lost revenue. Unfortunately the new law will also probably make it much harder for low income or medium to high credit risk families to get a credit card.