by Joseph Kenny | 11/20/09

When congress passed a new law that regulates the credit card companies the effective date was set for next Spring. But there has been an unexpected response on the part of the credit card companies. They began to drastically raise interest rates and fees to get them in place before the law takes effect.

The new regulations don’t limit how much interest rate can be charged on credit card accounts, but they do limit when changes in rates can take place. For example, interest rates cannot be raised on current credit card balances unless the consumer is at least 60 days behind on a payment. Currently the credit card companies raise interest rates with just one late payment.

There are other changes too including not being able to give credit cards to people who are under 21 years old unless they can prove they have the ability to repay the debt. Credit card accounts can also be given to under-21 year olds if a parent co-signs.

The new legislation was signed by President Barack Obama in May and it is supposed to take effect on February 22, 2010. But when the credit card companies began to raise rates trying to get as much out of consumers as possible before the new restrictions took place, the House decided it was time to move the effective date up so the new law takes effect immediately.

The Senate is expected to oppose the change in effective dates. Some Representatives like Spencer Bachus believe the response of the credit card companies should have been expected. He blames the rising interest rates on credit cards on Congress because the group chose to interfere in the free market.

The House bill proposing the effective date of the credit card bill be moved up was in response to consumer complaints about credit card company actions. Steep new rates and fees are being added to credit card accounts including those with excellent records. The Senate is not expected to pass the proposed legislation out of worries the short deadline will impact the credit industry as a whole during a time when credit is already tight.

But there is a hope that just proposing the legislation will put a stop to the new rate increases. Representative Dan Maffei said, “The same companies that were in my office that claimed they needed months at least to make changes to their systems, apparently only needed in some cases days to find ways to raise interest rates and decrease credit limits on customers across the country.”

Senate Banking Committee Chairman Chris Dodd had proposed a freeze on interest rates and fees to take effect immediately. The proposed House legislation would allow credit card companies to voluntarily put a freeze on their rates, and in doing so, would get until next February to comply with the one requirement in the new law that dictates additional consumer payment amounts be applied to the highest rate balances.

Though the House law will probably not pass, it does send a message to the banks that Congress is not willing to let the financial industry place extra financial burdens on consumers. The banks claim the fee increases are not intended to beat the law but are needed due to the economic conditions.