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The Credit Card Act: Who Benefits and Who Doesn't


Say goodbye to rewards and hello to new fees.

On Monday, February 22, the Credit CARD Act goes into effect.

Cardholders will see significant benefits from the reform, including restrictions on interest rate hikes and a ban on certain fees. (See Six Things You Need to Know About Credit Card Reform.)

But there are some unintended consequences of the CARD Act, now that more restrictions have been placed on credit card issuers, forcing them to find "creative ways" to generate more revenue.

Expect some of those revenues to come in the form of new fees. Bill Hardekopf, CEO of and author of The Credit Card Guidebook, points out that Citi (C) will be charging many cardholders a $60 annual fee beginning April 1, 2010. If consumers make at least $2,400 in purchases during the year, that fee will be credited back to them.

Bank of America (BAC) will begin charging some customers an annual fee of $29 to $99 on their accounts beginning this month.

Chase (JPM) and Discover (DFS) have increased their balance transfer fees from 3% to 5%.

Fifth Third Bancorp (FITB) added a $19 inactivity fee for cards that go unused for a 12-month period.

Consumers will also likely see a decrease in credit card rewards or cash rebates, as well as increased Annual Percentage Rates. According to the Complete Credit Card Index, the advertised rate for credit cards averaged 13.46% last week. Six months ago, the average was 12.11%. A year ago, the average was 11.51%.

However, it's not all bad news. The CARD Act will benefit those who want to visit national parks while carrying loaded firearms. Current laws only allow people to carry guns in national parks if they're unloaded and out of reach. (Republican Senator Tom Coburn of Oklahoma realized how important the CARD Act was to President Obama and traded his vote in exchange for slipping in this wholly unrelated amendment.)

From an investment perspective, analysts believe credit card companies' revenues should be stable in the short-term, but looking forward, the CARD Act could sting slightly.

Analyst Christopher Brendler of Stifel Nicolaus (SF) says issuers have "protected themselves pretty well," but the new rules might place a bit of a drag on long-term results.

Still,'s Hardekopf thinks the industry will find ways to remain profitable, regardless of restrictions.

"These are for-profit companies, not philanthropic organizations. If you take away their ability to make money in one area, they'll find a way to make money in another," he says.

"The credit card industry is not holding you down -- credit cards are great financial tools when used properly," Hardekopf says. "Pay them off on time and be responsible. The difference between credit cards and loan sharks is that you're not forced to carry a balance. Don't carry a balance and credit can be a wonderful thing."

This is especially true for customers of South Dakota's First Premier Bank, the country's tenth-largest issuer of Visa (V) and MasterCard (MA) credit cards -- and the country's only issuer of cards with a 79.9% APR launched a few months ago in response to the CARD Act.

Now, there's a "creative way" to generate revenue.

Get more on the state of consumer credit here.
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