The New Rules of Credit Cards

Paul McNamee has four credit cards, which he generally pays off in full each month, and always on time. So the Ellicott City, Md., computer scientist was taken aback when he recently received letters regarding three of the cards in the span of a couple of weeks.

Interest rates on two of them were going up -- one by nearly six points -- and fees on a host of transactions, including balance transfers and cash advances, were rising on the third card. "I'm perturbed," says McNamee.

Steve Comkowycz, a software consultant in Greenwich, Conn., used his annual bonus earlier this year to shave the balance on his credit card below 30% of the credit limit, on the advice of a finance officer at the car dealership where Comkowycz had failed to qualify for the lowest loan rate. Shortly afterward, the card issuer cut Comkowycz's credit limit by more than half -- and he was again above the 30% threshold that lenders strongly prefer. "I try to follow the rules," says Comkowycz, who was told the cut was the result of a "loss-mitigation review."

New York City real estate broker Fran Kaback typically schedules 12 months' worth of credit-card payments through her bank's online bill-payment program. Distracted by her elderly mother's hospitalization last fall, Kaback didn't realize 12 months were up on one card until the issuer called to tell her a payment was one day late. Though she paid on the spot over the phone, Kaback's 2.99% promotional balance-transfer rate jumped to 26.3%. "I feel so ripped off," says Kaback, who paid off the $14,000 balance and closed the account rather than fork over hundreds of dollars more each month in interest.

Cardholders across America are fuming over changes in the terms of the agreements they had -- or thought they had -- with their credit-card companies. Many are mystified because they have been good customers, paying their bills on time and sending in more than the minimum payment each month. Suddenly, pulling out the plastic at the grocery store or the gas pump feels like navigating a minefield.

Fueled by populist anger, lawmakers on Capitol Hill have pushed through legislation to give cardholders more rights, while card issuers counter that a rising tide of delinquencies and defaults leaves them little choice but to toughen up.

"Frankly, we're in extraordinary times," says Adam Levin, former director of the New Jersey Division of Consumer Affairs and founder of Credit.com, a credit-card information and consumer-advocacy Web site. Even if you have a pristine payment record, take stock now of every card in your wallet -- and that goes for the cards stashed in your desk drawer, too.

Fortunately, you still have options if you discover your credit-card issuer has done you wrong. And chances are, it has.

A survey by Credit.com last March found that more than one-third of cardholders surveyed had been penalized by their credit-card companies in some way. Fifteen percent of cardholders reported higher interest rates, 11% said issuers had raised minimum payments, 8% said their credit limits had been lowered, another 8% reported that their rewards program had been cut back, and 7% said their account was simply closed.