Last year's credit card reform bill was supposed to be a saving grace for strapped borrowers. Instead, it has simply reaffirmed the fact that when you put your finances in the hands of profit-seeking companies, even the government can't save you from your own excesses. The only effective way to fight the credit-card companies is to get rid of your debt once and for all.

Law by a thousand cuts
If it seems like we've been talking about credit card reform for months, it's because many provisions of the law have taken that long to go into effect. After passing a full year ago, many of the major provisions of the bill became effective as of February. Provisions prohibiting retroactive rate increases and bait-and-switch interest rate provisions, as well as notice provisions requiring 45 days before a card issuer makes material changes to your credit-card agreement, have all been law for six months now.

This time around, the latest provisions that took effect earlier this week target fee income. Card issuers must meet certain guidelines and limits before charging late fees and over-limit fees. Inactivity fees are no longer allowed at all. The net impact is to try to make sure that those consumers who've gotten in over their heads aren't in a position where penalty fees prevent them from ever digging themselves out again.

The anticipated response
As these provisions take effect, some cardholders will likely see some benefits. The typical late fee will likely fall from the typical current $39 charge to around $25, which is the safe harbor specifically given in the law.

But the way banks are responding will likely cost these borrowers more in the long run. Banks have raised their interest rates to the highest level since 2001. And when you consider that the prime rate is currently at a rock-bottom 3.25%, the spread of 11.45 percentage points is the biggest since the 1980s.

Here are just a few of the measures that card companies have taken in response to the legislation:

  • Capital One Financial (NYSE: COF), Wells Fargo (NYSE: WFC), and Citigroup (NYSE: C) have boosted the interest rates they charge new credit card customers by between one and three percentage points.
  • Bank of America (NYSE: BAC) is paying more attention to other banking relationships, such as deposit accounts, in making decisions about extending credit.
  • Discover Financial (NYSE: DFS) has seen a 60% reduction in the amount of balance transfers it authorized for customers compared to last year.

These moves have counteracted the benefits of the Credit CARD Act and put borrowers in almost as bad a position as they were in before the act. Improved disclosure rules at least give borrowers a better sense of just how bad a situation they're in, but when it comes to helping them fix it, the new legislation hasn't accomplished much.

The only way to win is not to play
What you need to understand about the credit card business is that with so much money involved, big banks and other issuers will do what they need to do to protect their turf. Whether it's increases to annual fees that American Express (NYSE: AXP) and JPMorgan Chase (NYSE: JPM) have instituted or the higher rates that we're seeing across the industry, card issuers will adjust the way they charge for cards to make sure they keep their revenue constant.

That makes it more important than ever to avoid debt trouble in the first place, or to get out of it as quickly as possible. Recent reports show that college students are taking on more debt than ever, and some for-profit educational institutions have gotten in trouble because their borrowers have bad track records in repaying that debt. With home equity no longer a source of funds for struggling borrowers, credit cards remain the last option for many to get cash and pay bills -- and knowing that, issuers can be secure in raising rates without worrying that they'll face much pushback from customers, many of whom have no leverage to fight back at all.

No matter what situation you're in, you can take steps to get rid of crippling debt. Many Fools have taken the debt bull by the horns and come out a winner. But if you keep thinking credit-card companies are on your side, you're going to find it almost impossible to escape -- and the credit-card law won't save you.

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