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I’ve told you once and I’ll tell you again, playing with credit cards is like playing with snakes. The more you play with them, the more you have the chance of getting bitten. Everyone knew that the fees associated with credit cards were getting completely out of hand, and finally the government acknowledged the predatory fee structure of these cards. As a result, the government recently passed legislation that limited which fees credit card companies are allowed to charge and how much they’re allowed to charge.

Consumers are generally happy with the legislation since our country is addicted to credit cards. After all, the average consumer was still using credit cards even with the exorbitant fees and interest rates. But when the government stepped in to regulate what credit card companies could do, did you think the credit card companies would just lie down and admit defeat? No way!

I want to first highlight some of the fees that the government now regulates, and then discuss some of the creative, new fees that credit card companies have conjured up to combat the system and ultimately take a huge chunk out of your wallet:

Examples of Fees That Were Reduced

• Late Fees: They were as high as $39, and now the max allowed today is $25. Also, companies must now give notice 21 days before payment is due instead of the old 14-day notice.
• Over-Limit Fees: They were as high as $39, and now the max allowed today is $28.
• Interest Rate Hikes: Interest rates can only be increased by giving 45 days notice instead of the old 14-day notice. Also, rates can only be increased after the first year and only for the following reasons: 1) customer made a late payment 2) promotional period ends 3) the card has a clearly stated variable rate.

These reductions are a huge hit for banks. Preliminary estimates are that these regulations would cause the industry to lose up to $5.5 billion in revenue this year. In addition to these reductions, there are some other advantages of the new credit card laws of 2010 that you should know about. Naturally, banks aren’t going to allow this loss of revenue to occur if they can help it. Instead of trying to support the new system and help out the consumer, these companies have created new credit card fees that aren’t regulated by the new credit card reform act.

Examples of New Fees:

• Balance Transfer Fees: The common balance fee before the reform act was 3% with a $75 dollar cap; now the common fee is 5% with no cap.
• Card Replacement Fee:  Yeah, you read that right. Credit card companies will charge you now if your card was lost or stolen. The fee ranges from $10 to $20
• Annual Fees: The average annual fee for credit cards with points and reward programs continue to rise. Fees have risen roughly 65% and 20% at credit unions vs banks respectively.

And of course, credit card companies are raising the average interest rate on credit cards. In 2009, the average rate was 10.7% and in 2010 the average rate is 13.6%.

I know that a lot of you don’t understand my distaste toward credit card companies. For those of you who keep enough money aside in your checking account, charge everything, and pay off your balance in full every month, I applaud your discipline and the fact that you are not letting these credit card companies take advantage of you. But, the large majority of us do not have the discipline or sound financial situation to properly use credit cards without falling into excessive debt. And with all the new fees being created every day by credit card companies, even the most savvy credit card user might end up paying these fees at some point while a cardholder. And don’t forget, if you are already in a difficult financial situation, credit cards are not a magic solution as you try to get out of debt.

Before you take the plunge into your next credit card, be honest with yourself whether you can responsibly handle a credit card without falling victim to the temptations of “free money.” If you are unsure about your ability to be smart with your credit card, stick with cash.

What are your thoughts on credit cards in general and all the new fees being created every day?

(photo credit: vipez)

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