When Paying Your Bill on Time Isn't Enough

Some credit card holders say they have been unfairly surprised by sudden increases in fees and interest rates.

(ABCNews Photo Illustration)

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Newsom, like many credit card holders, is finding increased interest rates, lower credit limits and changing fees. Americans on average have $8,000 in debt and own seven or eight credit cards. The total amount of consumer debt is close to $1 trillion. This is coming at a time when the mortgage crisis and unemployment have pushed people to the financial edge.

"The economy has weakened. The mortgage crisis has weakened the economy," said Scott Talbott, a lobbyist with Financial Services Roundtable, which represents 100 of the nation's largest banks. "You see a lot more unemployment, so there is a lot more risk in lending now. And so credit card companies are responding to that risk by increasing rates for some Americans and decreasing lines of credit for others."

Ed Mierzwinski of U.S. PIRG, a Washington, D.C., consumer advocacy group, said credit card companies had been unfairly targeting its customers.

"The last few months, banks have been tightening credit, tightening the screws on customers," he said. "They've started using unfair practices -- hair-trigger late fees, charging late fees when you were just one day or one hour late. In addition, the worst practice that people hate is they are raising your interest rate to a penalty interest for no reason at all."

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But Talbott said Americans have been relying far too heavily on their credit cards.

"Credit cards have really become a staple for most Americans, and for some, they've become a lifeline," Talbott said, adding that credit cards were meant for emergencies, but more Americans have started using them for day-to-day expenses. "The problem is that credit cards are really designed for short-term financing. They are not designed for long-term borrowing. And what more Americans are doing is using credit cards for long-term financing."

Ann Lee retired to Florida and started a small travel agency. This month her bank -- Chase -- cut off one of her credit cards, eliminating a $15,000 line of credit.

"We are always working about 18 months in advance, and I need a cash flow and I use my personal credit cards to handle my cash flow," she said. "It's easier than a small-business loan for me."

Lee said that in her travel business, she had to place deposits to hold cruise ship slots and hotel rooms, and had to guarantee those deposits with a credit card. So, she said, she maintains high balances on the three cards she uses for her company. But, she said, in 45 years she had never paid her bill late.

She had the credit scores to back that up. But this fall, she ran over the limit on one of her credit cards -- not the one that was canceled.