Earlier this year, new credit card laws promised to protect cardholders at the expense of the financial institutions that lend to them. But even as some of these rules took effect last week, banks have already taken several steps to ensure that they'll actually improve their profits going forward.

A little help for borrowers
To be fair, the credit card law did manage to solve many existing problems that credit card borrowers faced. Particularly egregious practices, including double-cycle billing and universal default, will disappear when the rules take effect. Card companies will have to give more notice of interest rate increases and other changes, and borrowers will be able to pay down high-interest balances before tackling outstanding amounts on low promotional-rate offers.

All of those provisions will give cash-strapped cardholders a bit more breathing room, especially those who regularly carry significant balances on their cards. Yet while those customers have traditionally been extremely lucrative for the banks that issue cards, card issuers are taking steps to shore up profits from their credit card divisions as much as possible before the new law fully takes effect.

How banks answered the call
In response to the implementation of the credit card law, banks have tried to do as much as they can before it takes effect. Since companies will have to give notice of rate increases after the law kicks in, many are moving to boost their rates now.

Some are doing so by raising rates directly, while others are taking cards that used to offer fixed rates and are replacing them with variable-rate cards whose rates will rise automatically with increases in the card's rate benchmark. In addition, to raise more income, some card companies are starting to charge annual fees on cards that didn't have them in the past, and paring back on the cash and other rewards they offer as incentives to borrowers.

Here's what various banks and other financial institutions that issue credit cards have done recently:



American Express (NYSE:AXP)

Higher rates on card balances and cash advances; higher late payment fees

Bank of America (NYSE:BAC)

Moved fixed-rate borrowers to variable rates

Discover Financial (NYSE:DFS)

Lowered cap on purchases eligible for cashback bonus; switched fixed-rate cards to variable

JP Morgan Chase (NYSE:JPM)

Reduced bonus and/or started charging annual fee on rewards cards

Citigroup (NYSE:C)

Added annual fees to certain cards

Source: WSJ.

Now, given how bad credit card default rates have been lately, some interest rate increases probably make sense. And since higher rates have the largest impact on those who carry balances, plenty of people who pay off their balances every month don't really need to worry about them.

What you can do
On the other hand, as banks target their more responsible customers, they're playing with fire. Most savvy cardholders who seek out the best deals aren't stuck with any card company; their stellar credit ratings ensure that they can get nearly any card they want. You can always vote with your feet.

Moreover, even if perfect-credit cardholders can't pressure banks enough to keep them from alienating their strongest customers, you can expect to get help from an unlikely source: card network companies Visa (NYSE:V) and MasterCard (NYSE:MA). Because they don't have any credit risk, MasterCard and Visa don't care about who uses their cards; they just want to increase volume. Attacking well-established customers with annual fees and reduced rewards will threaten industry growth. It's in Visa and MasterCard's best interest not to let that happen.

It's up to you
In the end, the focus on the credit card law has been misplaced. The true solution to solving credit card problems can't come from the government or any other third party. Instead, customers have to realize just how harmful credit cards can be to their financial health, and either learn to use them more effectively or give them up entirely.

Those looking for the credit card law to bring back the days of easy borrowing will be disappointed. However, if it proves to cardholders once and for all that they need to take control of their own destiny, the end result will be far better for them and the economy as a whole.

Hear that ticking? There's a financial time bomb out there, and Ilan Moscovitz is telling readers what they need to do before it goes off.

Fool contributor Dan Caplinger won't hesitate to cancel credit cards before paying annual fees. He doesn't own shares of the companies mentioned in this article. American Express and Discover Financial Services are Motley Fool Inside Value picks. The Fool previously owned shares of American Express. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy does its jumping jacks every single day.