Report: Credit changes have unforeseen consequences

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With consumers charging less on their credit cards, paying down their balances and steering clear of penalty fees, credit card companies are looking for new ways of making money.

A new study by the Pew Charitable Trusts found that annual fees and service fees have increased during the last year while penalty charges - which are subject to the new federal regulations - remained largely unchanged, according to a report in the Washington Post.

In a lawsuit filed last month, outdoor retailer Gander Mountain, based in Minnesota, claimed that its credit card partner, World Financial Network, was turning down shoppers with nearly perfect credit scores of 800 or above.

Gander Mountain said the reason was that the issuer said it could not make money from those clients.

Though industry experts say the case is extreme, it shows the challenges credit card companies face.

Issuers typically generate revenue from two sources, interest rates and fees. Congress has clamped down on both of those channels this year, including banning interest rate hikes on outstanding balances and curtailing penalty fees for late payments and over-limit purchases. The new rules are estimated to cost the industry at least $12 billion annually, according to law firm Morrison & Foerster, and issuers have long warned that customers in good standing could wind up paying the bill.

"A lot of people thought they were blowing smoke, but they were spot on," John Ulzheimer, head of consumer education for Credit.com, told the newspaper. "Now something has to give."

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