Credit card companies are socking it to consumers left and right. They’re hiking interest rates to as much as 36% and doubling minimum monthly payments, frustrating customers who are already cash-strapped and credit-crunched. In an effort to curb these abusive practices, President Obama signed into law a credit card reform act in May that’s rolling out in three parts over 12 months. At the same time, credit card companies have been hard at work coming up with new ways to boost profits while sidestepping the reforms. “Card issuers are making sure they can make up the lost money in new ways,” said Bill Hardekopf of Lowcards.com, a research company funded by a commercial debt collector. The first part of the law, which took effect in August, requires banks to give customers more notice ahead of major changes to their accounts, like rate hikes. Starting in February, limits will be imposed on when issuers can raise rates on existing card balances, and on new cards. In August 2010 some credit card penalty fees will be will reined in. But no legislation can fully shield consumers from the credit card industry’s ongoing efforts to boost the bottom line. The worst part? “All of these hikes are taking place simply because they can,” Hardekopf said.

1) RATE HIKES: Interest rates are out of this world. “They’ve increased steadily over the past 5 years, and in general are higher than they’ve ever been,” said Josh Frank, senior researcher at the Center for Responsible Lending (CRL), who says he’s seen annual percentage rates as high as 36%. No current laws cap credit card interest rates, according to Pamela Banks of Consumers Union, the nonprofit publisher of Consumer Reports, so technically the sky’s the limit. But the CARD act will help curb abusive practices. As of February, issuers won’t be able to arbitrarily raise rates on existing balances. But cardholders will still be subject to interest hikes for late payments and various other infractions. And card companies will be able to raise their rates as high as they want, whenever they want, on future purchases even after the reform bill kicks in completely. The act will bring protections for new customers; issuers will no longer be able to hike rates on new accounts in the first 12 months, unless the borrower is delinquent by more than 60 days or the increase is stated in the contract. Keven Vallance recently saw the rate on his Sears card increase from 9.99% to 13.99% for no apparent reason. When Vallance called Sears Credit, which is owned by Citibank, a rep told him every cardholder’s rate is increasing by 4%. Citi spokesman Samuel Wang said in an email that the company has “adjusted pricing and card terms for some customers as part of our regular account reviews.” Consumer outrage is boiling over. Last month, a disgruntled Bank of America customer posted a YouTube video complaining her bank “jacked up my interest rate to a whopping 30% APR.” Her rant went viral, and BofA dropped her rate back to its original 12.99%.

2) NEW FEES: Fees aren’t just rising -they’re multiplying. Cardholders are getting slapped with fees they’ve never seen before. The hitch: New laws can address only existing fees and business practices; they can’t predict what credit card companies will do in the future. “Theoretically, they could create a fee for names that begin with ‘J,’” said Lowcards.com’s Hardekopf. In reality, customers are seeing new annual fees, inactivity charges and more. Not of these charges are unheard of, but many fees that were unusual are becoming commonplace. Earlier this month, for instance, some Bank of America customers were shocked to learn that their no-fee credit cards would be subject to a new annual fee. BofA spokeswoman Betty Riess said the fees are part of a company test that affects 0.5% of all consumer accounts, and that the fees range from $29$99. The charges will be levied in February, and Riess said customers were chosen “based on risk and profitability” but have the option to reject the fees by canceling their accounts. Fifth Third Bank recently introduced a $19 inactivity fee for customers who don’t charge anything for 12 months, and Citibank is hitting some consumers with a fee if they put less than $2,400 on their card annually. To address this problem, House Financial Services Committee Barney Frank (D-Mass.) has proposed a new regulatory body, the Consumer Financial Protection Agency, which would approve new credit card fees. While the House Financial Service Committee approved the agency, it remains to be seen whether legislation will pass; lawmakers are battling over this and other reform proposals floating around Washington.

3) HIGHER MINIMUM MONTHLY PAYMENTS: Banks are also demanding bigger and bigger minimum payments. Chase has bumped up the minimum payment for some consumers to 5% of the monthly balance from 2%. For someone who carries a $5,000 balance, that means the monthly payment of $100 skyrockets to $250 -a whopping 150% increase. Consumer Union’s Pamela Banks says her organization has compiled a wealth of anecdotal evidence that indicates such increases in minimum monthly payments are widespread. “This is making payments virtually impossible for some people,” she said. “It’s throwing people off when they were living on a tight budget anyway.” Some good news is on the way, however. After February, card companies won’t be able to increase monthly minimum payments by more than 100%. For example, a bank cannot increase a 2% minimum payment to any higher than 4%. And this so-called “doubling” will be allowed only once during the life of the card.

4) FEWER REWARDS: Say goodbye to beach vacations and new iPods just for swiping your card. Rewards programs have been enticing shoppers to charge a purchase rather than paying cash -but card issuers are cutting back those perks. “This is happening with a significant amount of cards,” Hardekopf said, adding that many consumers are now receiving 1% cash back instead of the 2% or 3% they once enjoyed. American Express recently cut its Blue Card’s cash back policy from 1.5% to 1.25%. And all AmEx customers who make a late payment will no longer accrue points on their purchases -however, those points can be reinstated with a $29 fee.

5) SLASHED CREDIT LIMITS AND CANCELED ACCOUNTS: Without so much as a call from the bank, some customers are learning their credit limits have been slashed by as much as 75%, or that their accounts have been closed altogether, according to the Center for Responsible Lending’s Josh Frank. Citibank recently closed what a spokesman called a “limited number” of MasterCard gas cards co-branded with Citgo, ExxonMobil, ConocoPhillips and Shell. “People go to make a purchase, and they find out about these huge changes only when they’re denied,” Frank said. “It’s a shock, and it’s been happening a lot.” Even cardholders who don’t charge anything might find their accounts abruptly closed, Frank said. With credit losses at a record high, companies see inactive cards as a red flag and close the accounts to avoid the worry of future writedowns. “Usually cardholders have this credit line available for an emergency, for this kind of current economic situation,” Frank said. “But now they’re turning to it when they need it, and it’s gone.”

What’s a cardholder to do? Consumers must pay close attention to the terms of their contracts, staying alert to any changes. “It’s boring reading, and it can be hard to understand, but that’s where everything is spelled out,” said Lowcards.com’s Hardekopf. Of course, while there are laws aimed at helping consumers, legislation can’t do it all. “As we close the loopholes on some things, they open up elsewhere,” said Consumer Union’s Banks. “Reform acts don’t cover everything, and cardholders have to watch out for their own accounts.” And if you don’t like your credit card’s new terms? “Shop around -you are not married to your card,” Hardekopf said. “It’s a partnership, not a lifelong contract.”

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“I said to them, ‘You’re giving me the option to either shoot myself in the foot or shoot myself in the hand. That’s just unacceptable,’” said Skinner, from Greenville, S.C. She holds only two credit cards, so the hit to her credit score from closing one would be significant. “What am I supposed to do?” she wondered. It’s a frequent question for American consumers these days. Half of all account holders say they’ve been hit either with a higher rate or a lower limit in recent months. While consumers are customarily given the choice to decline the new terms and close the account, doing so flies in the face of all standard advice from personal finance experts because closing credit cards usually has a negative impact on credit scores. “Credit utilization” is one of five important factors used to determine a consumer’s score. Closing a card with a $10,000 limit means the consumer has $10,000 less in credit. If that consumer owes $5,000 on a second card with a $10,000 limit, their utilization just shot from 25 to 50 percent, a credit score killer.

So which bad choice is right for Skinner and other consumers facing the same conundrum? The answer is perhaps even more maddening than the question: “It depends” and “there’s no surefire way to know ahead of time.” But there are some clear guidelines that can help. For starters, closing an account will never help your credit score, despite persistent mythology to the contrary. The only time closing a credit card account is a good idea is when keeping it open will do even more damage than the lowered credit score. No one can say precisely how much closing a credit card account will hurt your credit score -too many other dynamic factors go into calculating the number. Fair Isaac, which owns the credit score formula, says the impact can range from zero points to “dozens of points,” according to spokesman Chris Groppa.

Dozens of points doesn’t sounds so bad, right? Wrong, says Credit.com’s John Ulzheimer, himself a former Fair Isaac employee. “The amount of their score drop isn’t as important as whether or not they cross the lines between approved and declined, and better rate or not as good of a rate,” he said. “Example: If my score goes from 685 to 675 then that’s only 10 points so no big deal, right? But what if (the consumer) applied for a car loan and the lender offered 7.9 percent above 680 and 9.9 percent for someone below 680. Then the 10 points become very meaningful. This isn’t unrealistic as all lenders use score-tiered decision tables.” In other words, if you are planning to buy a house or a car in the next month or two, closing a credit card is a terrible idea -even if your interest rate is about to skyrocket. But outside of that backed-into-a-corner situation, consumers should feel comfortable exercising their right to fire their credit card company and accept the consequences. “People shouldn’t let worry over FICO scores rule their lives,” Groppa said.

For starters, a higher rate will cost money today for anyone who doesn’t pay their balance in full. A credit score drop of 20 points or so might cost you money tomorrow. But you don’t know how much, and you don’t know how long the credit score hit will last. It’s smart to take the sure savings today and close the card. There are strategies for minimizing the negative impact once you do so. First, carrying a low balance or paying off your cards is the best insurance against the penalty of closing a card. If a consumer closes a card and loses $10,000 in available credit, but pays off $10,000 in debt on other cards, the available credit would remain equal and there would be no or minimal impact on a credit score, he said. Of course, that’s not always realistic. A second route to a similar result is to open new credit cards with limits that replace the lost credit.

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