Exploiting The Credit Card Law Loophole

The Senate passed a major reform of the credit card industry Tuesday that clamps down on arbitrary fee and interest rate increases. But even after President Barack Obama signs the bill, the law won't fully take effect for nine months.

That's a nine-month loophole, and as CBS News business correspondent Anthony Mason reports, consumer groups are concerned the credit card companies will use the time to hike up interest rates and fees while they can.

At a credit counseling center in Dallas, calls for help are up 40 percent over a year ago. Many come from borrowers buried in credit card debt.

"It's amazing how much of the debt is actually fees and interest instead of principal," said Todd Mark of the Consumer Credit Counseling Service of Greater Dallas.

Comedians may joke about the banks - Stephen Colbert said this week that the card companies "simply change their rules and interest rates based on what the credit rule monkey spins on his rule randomizing wheel" - but they're not laughing on Capitol Hill anymore.

"They will go kicking and screaming into the night on this one," said Adam Levin of Credit.com.

Levin warns that lenders will use the nine months before the law in enacted to raise interest rates and hike fees.

During that time, he said, "We could face the continuing reign of terror."

Interest and fees are lenders' primary sources of profits. So to make up for lost revenue, credit card companies may now have to go after the 45 percent of borrowers who pay their bills on time.

Among the possibilities:

  • Reviving annual fees
  • Charging interest immediately on purchases instead of offering grace periods
  • Eliminating rewards programs

    At the same time, lenders are making it tougher to borrow. Nearly 60 percent of banks say they've tightened credit card lending standards this year. That means less money for borrowers squeezed by the recession.

    "And we still face the fact that Americans are debt-ridden and that Americans have to focus on developing a serious plan personally to reduce their debt. Because this is not going to solve that problem," Levin said.

    Americans still owe $945 billion in "revolving" debt - most of it on credit cards. But that's down from $980 billion six months ago.

    Tighter lending standards may be one reason. Another: Americans finally may be starting to pay down their credit card bills.