4 Ways Sneaky Banks Will Evade the New Credit Card Law

(MoneyWatch)  For months I've been trying to figure out what credit card companies are going to do to get around the CARD Act, which takes effect on February 22. I had already identified one -- switching everybody to variable rates linked to an index like the prime rate. Doing so allows to banks to change your rate without advance notice. What's more, the variable rate applies to your old balance, which the CARD Act forbids for fixed rates.

But thanks to a report called "Dodging Reform," by the Center for Responsible Lending (CRL), a nonprofit nonpartisan research organization, we now know what insidious tactics cardcos are using to squeeze more money out of you and other cardholders.

Among the worst new practices:

• Sneaky rate hikes: As you know, a card's interest rate is set by adding a fixed rate to an index, usually the prime rate. (As I reported in an earlier post, those fixed rates have been growing faster than kudzu.) Previously, the index rate would be the maximum prime rate reported on the last day of the billing cycle. Issuers now say that the index will be "the maximum prime rate reported in the 90 days preceding the last day of the billing cycle." Ergo, a cardco can pick whatever rate it wants. CRL estimates that the practice will raise the average consumer's rate by 0.3 percentage points at a minimum cost of $720 million a year.
• High floors: Let's say that you open a variable-rate card with an interest rate of 12.9%. If the prime rate drops, you'd expect that your rate would too. Well, fat chance. According to many new card agreements, 12.9% is your floor; your rate can only rise. Meanwhile if card companies pay only 2% to borrow funds, instead of, say, 6%, they reap a windfall at your expense.
• Late fees at the top: For nearly ten years, late fees have been tiered. In other words, the more your balance, the higher the late fee. Typically, cardcos had three categories with the top at $1,000-plus. Now, however, many are lowering that "top" to $250. According to CRL, almost everyone who pays late -- some 87% -- will be stuck with the top fee, now about $39.
• Balance transfer and cash advance fiddle faddle: Banks have historically charged fees of 3% or so of any amount transferred or advanced, but there was a ceiling of, say, $50 or so. No longer. Transfer $3,000, and you'll pay $90.

None of these subtle changes in pricing are banned by the CARD Act, and, according to CRL, consumers are unlikely to even notice them in their cardholder agreements. Has Congress or the Federal Reserve addressed them? Nope. They're too busy finalizing regulations on what they've already passed. As usual, the banks are way ahead of the authorities.

All these practices make no better argument for the establishment of a Consumer Financial Protection Agency which would identify such anti-consumer tactics and stop them cold.