So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.
It wasn't supposed to be this way. The law that President Barack Obama signed last May shields card users from sudden interest rate hikes, excessive fees and other gimmicks that card companies have used to drive up profits. Consumers will save at least $10 billion a year from curbs on interest rate increases alone, according to the Pew Charitable Trust, which tracks credit card issues.
But there was a catch. Card companies had nine months to prepare while certain rules were clarified by the Federal Reserve. They used that time to take actions that ended up hurting the same customers who were supposed to be helped.
Here are some more results:
Annual fees, common until about 10 years ago, will make a comeback. During the final three months of last year, 43 percent of new offers for credit cards contained annual fees, versus 25 percent in the same period a year earlier
Several banks also added these fees to existing accounts.
-- Created new fees and raised old ones.
These include a $1 processing fee for paper statements for cards issued by stores such as Victoria's Secret and Ann Taylor. Another example is a $19 inactivity fee Fifth Third Bank now charges customers who haven't used their card for six months.
Other banks increased existing fees. JPMorgan Chase, for instance raised the cost of balance transfers from one card to another to 5 percent of the transfer from 3 percent.
-- Raised interest rates.
The average rate offered for a new card climbed to 13.6 percent last week, from 10.7 percent during the same week a year ago -- meaning cardholders had to pay almost 30 percent more in interest, according to Bankrate.com.
For millions of other accounts, variable interest rates that can rise with the market replaced fixed rates. The Fed is expected to start raising its benchmark interest rates later this year, which would likely trigger an increase on those cards.
-- Fewer cards being issued, more being cut off
The number of Visa, MasterCard and American Express cards in circulation dropped 15 percent in 2009, for example. Rarely used cards were among the first cut off. Some cards linked to rewards programs for purchases like gasoline were likewise shut down.
Card companies also slashed credit limits for millions of accounts that remain open. About 40 percent of banks cut credit lines on existing accounts, according to the consultant TowerGroup, which estimated that such moves eliminated about $1 trillion in available credit. Much of that was unused.
Companies are also making fewer solicitations. Mailed offers for new cards increased in the final three months of 2009 for the first time in two years, but there were only about 575 million. That's about a third of the average number of quarterly offers from 2000 through 2008, according to Mintel.
Because the law makes credit cards less profitable, some subprime borrowers may not be able to get cards at all, at least for the next few years. There's no fixed definition, but subprime borrowers generally have a FICO score below 660. For a good portion of this group, options may be limited to alternatives like PayPal and other electronic payment services, prepaid cards and payday lenders.
I'd guess supporters of these moves could say these measures will ultimately reduce the possibility for credit bubbles to reoccur and keep people who can't pay from getting out of control with their credit cards. But the moves will also have the effect of reducing consumer financial flexibility and make it so much more expensive for people who already have outstanding debt. Get ready to start feeling more of a financial squeeze.
The knock out punch will be the inevitable higher taxes that are on their way.