Are Americans finally getting the message about credit cards?

It looks like they might be, although it took one heck of a recession to do it. A report released last week by the Federal Reserve said that consumer credit card use fell again in July -- for the 23rd month in a row. Since August 2008, in other words, which is when the extent of the financial crisis really started to become clear to mainstream folks.

While this trend isn't being hailed universally as good news -- less credit card use means less consumer spending, which means a slower economic recovery, or so the argument goes -- I for one am glad to see it.

Because despite recent reforms, credit cards are bad news.

Reform? Sort of
When the first part of the Credit Card Reform Act went into effect last February, it seemed like a pretty good thing. The new rules curbed the most egregious of the big banks' abuses, like retroactive rate increases, targeting college students dependent on their parents, and playing games with due dates in order to harvest extra late fees. While I predicted at the time that the banks would find new fee-harvesting stunts to pull, taking these shenanigans off the table was a definite improvement.

The rest of the act came into effect in August, and it was largely about fees: Penalty fees can't be larger than the amount in question (no more $30 fees for being late with a $15 payment or $10 over your limit, in other words); most penalty fees are limited to $25 (though they can be raised for repeat infractions); "inactivity fees" are no longer allowed; and interest rate increases have to be explained to you and re-evaluated every six months.

None of this is bad. But if you think it means the banks are going to play fair, think again.

Old dogs, new tricks
Already, reports are surfacing of new ways to add fees and restrict incentives:

  • "Rewards" with a catch: A recent SmartMoney report busted Discover Financial (NYSE: DFS) and JPMorgan Chase (NYSE: JPM) products for prominently advertising 5% "cash back rewards" -- but hiding the rather large list of qualifiers, exceptions, and conditions in fine print. Long story short, you'll get that 5%, but only sometimes, only on some kinds of purchases, and only if you remember to sign up.
  • "Upgrades" that aren't: Citigroup (NYSE: C) recently told customers holding a 2% rewards card that they would be "upgraded" to a new card with a fancier name -- and conditions making those rewards harder to collect. As with the Discover and Chase accounts, the categories eligible for rewards change regularly, and you have to re-register every quarter to collect them.
  • Hidden balance transfer fees: Issuers love to promote their cards with "0% introductory balance" deals, but increasingly these 0% promotions don't apply to balance transfers. And even if they do, you may end up paying a sizable fee on the transferred balance. It could be as much as 5% in some cases, and the industry trend is (surprise!) toward higher fees. That trend isn't limited to balance transfers, by the way; say "welcome back" to annual card fees and expect card interest rates to rise even as bank and bond rates stay near historic lows.

The only way to win is not to play
As my fellow Fool Dan Caplinger said recently, "When you put your finances in the hands of profit-seeking companies, even the government can't save you from your own excesses." That's exactly right: The big issuers have historically made big money from credit cards, and they will continue to search for ways to preserve those revenue streams. And those ways won't typically work to your advantage.

Sure, some banks will look to make up lost ground in other ways. Megaissuer Capital One (NYSE: COF), for instance, recently acquired 20 million new accounts via a store card deal with Kohl's (NYSE: KSS). But by and large, all-purpose cards within the Visa (NYSE: V) or MasterCard (NYSE: MA) networks are where most of the action is, and the banks are expecting to take that revenue out of your pockets, just as they have in the past.

Your best defense, as always, is a good offense. Make it a priority to pay down any existing balances, and then save the credit cards for when you really need them. Credit cards certainly have their place; in an era when many folks no longer have significant home equity, a card can provide a valuable credit line in a crisis. But always keep this in mind: Credit card companies are not your allies, and if you decide to play their crazy games, you can't win.

Ready to get rid of that credit card hangover? Dayana Yochim knows how to boost your credit score in months.