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Change in Terms: Credit card reform, is it in your best interest

Relief is on the way – but at a price.

The Credit Cardholders’ Bill of Rights Act of 2009 has landed on President Obama’s desk after passing the House Wednesday.

When signed into law, it will affect the pocketbook of every man, woman – and yes, teenager – who uses credit cards, only to find interest rates inexplicably jacked up and teaser rates that seem to last just minutes before ballooning to double digits. It will revolutionize the market by restricting when and how a card company can raise an individual’s interest rate, who can receive a card and how much time people are given to pay their bill.

“The legislation will level the playing field for consumers by eliminating ‘gotcha’ practices such as double-cycle billing and anytime-any reason interest rate hikes,” said Greg McBride, senior financial analyst at Bankrate.com in North Palm Beach.

It’s not without a cost: “Even consumers with very good credit will see lower credit limits, higher rates and higher fees than they have been accustomed to in recent years,” McBride said.

Yet, consumers with good credit say they already have been targeted for lower credit limits, sharp rate hikes or both.

Patrick Johnson, 28, of North Palm Beach, a biomedical equipment technician, said HSBC Master Card took too long to process his online payment, then said he was late and raised his interest rate to 29 percent. “It will be years before I pay this off,” he said.

Rafi Davidoff, a Delray Beach resident and recent college graduate, said his Royal Bank of Scotland credit card shot up from 6.99 percent to 15.99 percent without notice.

“When I called them to ask for the reason why my interest rate went up, they said in order for them to stay in business, they raised my rate,” Davidoff said.

Other frustrated consumers have complained to the Florida Attorney General’s Office in increasing numbers. There were 836 credit card complaints in all of 2006; there have been 640 already this year.

Banks, which opposed the legislation, say they will need to make up the cost somewhere, and cardholders who pay off their balance in full each month could see new annual fees and lucrative rewards programs canceled. Credit could become harder to come by, too.

That may happen sooner rather than later. Most reforms will not take effect for nine months. “In the meantime, brace yourself,” McBride said.

McBride points out that since the Federal Reserve approved similar new rules for the credit card industry in December, card issuers have been rushing to raise rates and cut credit limits before those regulations take effect in 2010.

Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health Group, insists that companies already offering transparent pricing won’t have to drastically change how they do business. Lenders probably could cover costs with small annual fees in the $15 to $20 range or increase upfront interest rates, he said.

“Nothing requires pricing to go up and benefits to go down,” Bourke said. “The only thing that is required is that the price offered actually reflects the cost of using the card.”

Johnson is hopeful the new legislation will change some credit card practices, but, he said, “I don’t have too much faith in it. I am sure there will be loopholes.”

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