Probably one of the biggest detriments to individual finances has been the introduction of the credit card. If you couple credit card abuses with home equity loan abuses, the result is an America where the average adult has a very low or negative net worth. Most people today carry significant balances that result in high interest costs and that require years to pay off. When credit was easy, many took advantage of home equity loans to pay off their credit card debt. Few learned their lessons and proceeded to run up their credit card debt once again. When the housing bust occurred, they found themselves deeply under water.

Contributing to the problem have been exorbitantly high interest rates and somewhat abusive practices by the banks. In an effort to protect consumers, Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009. Under the new law, credit card companies are required to inform customers how long it will take to pay off their balances assuming they make only minimum payments. They also cannot raise the interest rates on cards without giving cardholders a 45 day notice.

The new law includes a number of other new rules that are meant to protect cardholders. Those new rules, however, will result in a significant decrease in revenue for the banks. As a result, cardholders will see many new fees aimed at recovering that lost bank revenue.

A recent article in the Wall Street Journal by Robin Sidel (“Credit-Card Fees: The New Traps”, February 10, 2010) outlined many of the changes taking place. A couple of examples from her article include:

(1) Citigroup will provide a 10% discount on interest charged if cardholders pay on time, but will charge 29% if the customer doesn’t pay on time.
(2) Some companies are introducing variable-rate cards. Even though interest rates are low now, these cards will make it easier for banks to charge a higher rate in the future as rates rise.
(3) Companies are increasing fees on foreign transactions and for extra services such as year-end statements.

The bottom line is that unless consumers pay close attention to communications from their credit card companies, they may end up paying even more in the future than they have in the past. How often do you open up a letter from your credit card company with print so small you need a magnifying glass to read it? How often do you just toss such letters in the waste basket? If you don’t pay attention in the future, your use of credit cards may be far more costly than in the past.

Congress’ attempt to protect consumers and lower the costs of credit cards may have the opposite effect. It’s somewhat similar to taxes. Whenever Congress attempts to “simplify” taxes, the tax code just gets more complex.

For more information on what to expect, we highly recommend you read the entirety of Ms. Sidel’s article.