Last Updated Aug 23, 2010 4:49 PM EDT
You've been paying high costs for credit right along, often without knowing. Some charges were hidden or hit you by surprise. Some were abusive, such as slapping you with a $35 fee for a $5 debit-card overdraft on your account. The banks have been earning an estimated $50 billion in revenues by treating their credit-card customers in underhanded ways.
Thanks to new pro-consumer laws and regulations, some of which took effect yesterday, bad practices have been reined in. As a result, the banks are trying to make up that $50 billion in other fees. For example, the average interest rate on existing credit cards rose to 14.69 percent in the second quarter, compared with 13.07 percent a year earlier, according to the market researcher, Synovate.
In other actions, banks are nipping rewards programs, raising fees for transferring balances, putting higher minimums on free checking accounts, and raising fees on safe deposit boxes, among other things.
Do the new rates and fees make you mad enough to cut up those expensive cards or find a lower-cost banking institution? Excellent. That's what cost transparency is all about. Before these reforms, you often got stuck with charges you didn't expect. Now, you've got a road map to reducing costs.
The more fees you see, the more apt you'll be to switch to credit unions or community banks. You might pay off your balances faster and refuse your bank's generous offer to enroll you in their expensive overdraft programs.
At the same time, banks should become more competitive. There's always more pressure to reduce the fees that consumers can see.
I don't mean to imply that all is hunky dory in credit-card land. For example, many banks are still engineering their payment systems to charge you excessive fees when you sign up for debit-card overdrafts (as I wrote last week, you should just say no). Other problems will turn up.
But here's what you've gained from credit card reform: Banks can't charge you overdraft fees without your consent. They can't suddenly raise your credit-card interest rates on all past purchases. They can't sell you a "fixed rate" card and then raise your rate the following week. They can't manipulate the hour when they post your monthly payments, so that your on-time payment registers as late. They can't raise your rates at any time, for any reason, by surprise.
Under the rules effective yesterday, card issuers can't charge you more than $25 for a late payment ($35, if you've already paid late twice in a six-month period). Previously, it was common to charge $39. Also, the late fee can't exceed the balance you owe. If the bank penalized you by raising your interest rate, that decision has to be reviewed every six months. If you're back on the straight and narrow, your rate should go down. If you stop using your card, the bank can't charge you an inactivity fee.
As for today's rates and fees, they're not carved in stone. Banks will compete for your business and visible charges will decline. Take credit cards, again. In the first half of this year, issuers mailed 55 percent more new offers for cards than they did in the first half of 2009, Synovate reports. But instead of rising, average rates on those new offers fell in the second quarter to 13.75 percent, from a high for this cycle of 14.24 percent.
When they want you, banks know how to come and get you with better terms.