WASHINGTON (TheStreet) — Credit card issuers have lost billions of dollars on bad loans during this economic downturn, and new rules might hurt their revenue streams further.
In May, Congress passed the Credit Card Accountability, Responsibility and Disclosure Act, a law designed to protect consumers from rapid interest rate increases and certain penalties. Some of its provisions began in August, and the next become effective Feb. 22.
Issuers are trying to find ways to boost their incomes, and these efforts will likely come at the expense of cardholders. Here are some predictions for the credit card industry this year:
1. More cards with annual fees: About 20% of credit cards in the U.S. have an annual fee. That percentage will increase this year. New cards have already been introduced with annual fees and some credit card issuers are testing annual fees on their existing cardholders.
In October, Bank of America (Stock Quote: BAC) told a small percentage of customers that it planned to charge an annual fee of $29 to $99 on their accounts beginning this month. Only a few customers (0.5%) received the notice, but the outcry against this annual fee was loud.
JPMorgan Chase (Stock Quote: JPM) is using premium rewards to encourage customers to select or upgrade to cards with annual fees. They introduced the Sapphire Preferred card, which has an $85 annual fee and enhanced benefits.
2. Increases in interest rates: Even though the CARD Act limits the issuers' ability to raise rates "at any time, for any reason," expect issuers to find loopholes and create opportunities to raise rates. Because the CARD Act limits interest rate hikes during the first year for cardholders, issuers are likely to boost their advertised annual percentage rates to lock customers in at a higher rate.
3. Increases in existing fees: The CARD Act doesn't limit fees, so expect issuers to raise existing fees. For example, the industry standard for balance transfer fees was 3% a year ago. If you transferred $10,000, you would incur a $300 fee. Bank of America has since increased its balance transfer fee to 4%, and JPMorgan and Discover (Stock Quote: DFS) lifted their fees to 5%. Expect other issuers to follow. Cash advance fees are also likely to increase.