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Do you feel protected yet?

Today, the first provisions of the new Credit CARD Act — designed to protect consumers from the dirty tricks of credit card issuers — kick in. Unfortunately, as is so often the case with federal legislation, the law of unintended consequences appears to have kicked in already.

As Chuck Jaffe points out, this law that was supposed to make things better for consumers is, in many cases making things worse. How? In a nutshell, by making it harder for credit card companies to tighten the screws on specific card holders in response to bad credit behavior, the new act has pushed the companies to simply start treating everyone as if they are a bad credit risk.

Used to have a low fixed-rate card? Now that the card companies can't promptly jack up the rate if your credit profile starts looking squirrelly, they're simply converting most everybody's fixed-rate cards into variable rate cards (which don't face the same provision). Didn't like the old "universal default" clause issuers used to raise rates on one card when another card's payment was late or missed? Then you'll love the new informal "universal cutoff" policy the companies have replaced it with by amending their agreements in advance of the new CARD act.

"Everybody is pretty squeamish about risk right now, and card issuers are mitigating that risk by closing unused credit lines, cutting credit lines, changing terms on customers whose credit record has changed, and by raising interest rates while they still can," said Greg McBride, senior financial analyst for BankRate.com. "In many, many cases, they are doing this to consumers who have not set a foot wrong, people who have paid their balances every month, who don't have big balances, or who maybe haven't used their card in a while."

He added: "Once upon a time — not so long ago — these were the best customers a credit-card issuer could have, the ones they were giving big incentives to get; now, they are following a 'Ready! Fire! Aim!' approach and hurting people who were not the problem and who likely would never be the problem."

Many of these changes have happened over the past few months as card issuers prepared for the new regulations. But many companies continue to make changes to their card terms, so now is definitely a time to actually read any changes about your cards that might be included with your statement or mailed to you separately. What you don't know can certainly hurt you in this department.

For instance, the Wall Street Journal reports today that Citigroup is initiating new annual fees on some of its cards. If you've got good credit and aren't getting some "extra" benefits that you value highly, there's no reason to put up with an annual fee being slapped on your account. You have two months to opt out, paying off your current balance under your original terms before closing the account. Use the time to line up a replacement card and send a clear message that you're not going to pay unnecessary fees. You can be sure the other card companies are watching closely to see how this brazen maneuver is received.

Of course, the best approach is to quit using credit cards altogether. You won't have to worry about these changes in terms, and you'll almost certainly find you spend less. (Many studies have shown that consumers spend more — typically 15-30% more — when paying with plastic rather than cash.) But if you're not willing to quit the credit card habit altogether, at least be sure you keep a close eye on your terms and statements over the next several months.

Update: Mary Hunt analyzes a different aspect of the new CARD Act — its implications for young adults (students) and their parents. If you have a child in college, or will soon, you need to read this.

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