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PersonalFinance: What to do about your credit cards now

Linda Stern is a freelance writer. Any opinions in the column are hers. You can follow Linda Stern's financial notes on Twitter at http://www.twitter.com/lindastern

By Linda Stern

WASHINGTON (Reuters) - It seems as though every day brings another dozen letters telling you "there has been a change in your credit card." Entire card programs are ending, rewards programs are evaporating, and more complicated versions are being put in their stead.

This is one effect of the new consumer-protecting Credit CARD Act that went into effect at the end of February. Card issuers are looking at the new rules and finessing their programs for maximum profit -- for them.

"Credit card companies and banks are finding loopholes to the CARD Act," reports Credit Karma, a consumer credit monitoring site. "Banks are still finding little ways to say 'Gotcha!'"

Issuers are ending old programs and creating new ones, and the cards you depended on a year or two ago may no longer be the best ones for you now.

On Tuesday, the Federal Reserve Board issued new rules that would limit late fees and other penalty charges to $25. These rules, which go into effect on August 22, also would ban inactivity fees.

The Fed has rolled out a new credit card comparison site (http://www.federalreserve.gov/creditcardagreements/) which offers a searchable database of current card agreements, allowing consumers to read all the small print before they apply for a card.

But it does not include information on rewards programs -- you can usually find good information about that on comparison sites like IndexCreditCards.com (http://www.indexcreditcards.com) and LowCards.com (http://www.lowcards.com).

So, even if you thought you had good deals on good cards, it's time to review your plastic again. Here are some of the newest developments and CARD Act loopholes, and what to do about them:

-- Rolling rewards. You used to be able to use one card to get 5 percent back on office supplies and another to get 3 percent back on groceries, but those various bonus rewards plans are disappearing. In their stead are rolling rewards programs that change every month or so. Chase, Citi and Bank of America all have unveiled new programs that offer 1 percent cash back on everything, with extra rewards changing quarterly.

For example: you can earn more points on home improvement purchases in the spring, and on hotel visits in the summer. This makes it less worthwhile to carry a wallet full of cards with each one earmarked for a different category of spending.

Instead, look for one card that offers a good rewards program and stick with it. The Blue Cash program from American Express https://www217.americanexpress.com/cards/loyalty.do?page= bluecash.maximize.new&intlink=bluecashcalc is now one of the most generous use-it-for-everything cards out there.

-- Rising rates. The average interest rate on credit cards now is 16.8 percent, says IndexCreditCards. Yikes! Compare that with the 3.25 percent prime rate. It's hard to imagine what the cards will charge once the Fed starts raising short-term interest rates again, because most cards are variable and will rise with market rates. In its rule-making this week, the Fed directed issuers to reconsider the rate hikes they pushed through last year, in advance of the CARD Act. For consumers, the only real solution is to pay off your balances every month. If you just can't do that, hunt for a low-rate card and don't worry about rewards points. Devote your financial resources to killing your balance before rates get any worse.

-- The minimum payment trap. Issuers now have to allocate any extra money you pay on your card toward your highest interest debt. So if you are carrying a balance at 1.99 percent from a low rate balance transfer offer, and you charge a $300 suit, when you pay an extra $300, it will pay off the suit first and not your low-rate balance. But there is a catch: That only kicks in after you've paid the minimum payment, which issuers will still aim at your lowest-rate debt. The solution? If you're not paying much more than the minimums, keep separate balances on separate cards, just like in the old days, says Odysseas Papadimitriou, CEO of CardHub.com (http://www.cardhub.com).

-- The biz card loophole. Small business cards weren't included in that legislation. That's why you may be getting solicitations for small business cards, even if you don't have a small business. These cards can be useful if you have your own business and buy lots of office supplies, but they can hit you with some troubling rate increases and fees if you are not carefully monitoring them.

-- Arbitration clauses. Most credit card issuers still require that cardholders sign away their right to sue and agree to binding arbitration, often in the state where the card issuer is headquartered. Bank of America is an exception, having done away with its arbitration clauses in 2009. The chances of you actually suing your credit card issuer are very small, but consumers should avoid arbitration clauses on principle, when they can.

-- Crazy fees. There is no prohibition against issuers charging annual fees and some observers say this will happen more and more going forward. But the credit card business is still very competitive and, so far, not many issuers are adding annual fees for mainstream consumer cards. But Ken Lin, CEO of CreditKarma, says he's seeing some issuers add "processing fees" for new cardholders. In those cases, applicants need to pay a fee before their card is activated. No, thank you.

(Editing by Gunna Dickson)

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