Some of the most important consumer protections offered by the Credit CARD Law of 2009 are those that place limits on the ability of credit card issuers to raise interest rates.

In this post, we’ll lay out the facts, but as importantly, we’ll dig deeper to reveal how the credit card companies are likely to react. That’s what you need to know to determine whether you will come out a winner or a loser.

First, the facts: under current law, credit card issuers are allowed to increase the rates on existing credit card balances whenever they wish and for any reason or no reason. They do have to provide 15-day advance notification. They also must allow customers to “opt out” of the increase, enabling the cardholder to pay the remaining balance at the original lower rate.

The new law, which goes into effect early next year, specifically spells out the circumstances under which any credit card issuer may raise the interest rate on an existing credit card balance.  

1. An increase in the index to which the interest rate is pegged: Many credit cards carry variable interest rates, which are linked to the Prime Rate or LIBOR (the “index”). The new law continues to allow issuers to move rates up and down as the underlying index varies.

2. If you take advantage of an introductory rate or a promotional rate on the account, the issuer may still raise the rate on that balance at the time the promotional rate expires. However, the law requires credit card issuers to allow at least a 6 month introductory period, before interest rates may be increased.

3. If you fail to make a payment within 60 days of your due date, the issuer may raise the rate on the existing balance. If the issuer chooses to raise the rate at that time, it must notify you in writing of the reason for the increase. Also, if you make at least a minimum payment for each of the six months following the increase, the issuer must decrease your interest rate back to the original rate.

Those provisions specifically address the rules surrounding existing balances and their interest rates, but the new law also establishes controls on pricing the future purchases of the cardholder. Before increasing the purchase APR, the law requires the credit card company provide at least 45 days notice to the customer before any such interest rate increase takes effect. Theoretically, this gives the consumer the opportunity to find a replacement card.

The short-term impact of the passage of the law is clear; issuers have already begun increasing rates on existing balances. Remember, the changes don’t go into effect until February 2010. Therefore, it’s important to keep an eye out for any mail you receive from your credit card company. If you receive notification of a rate increase and want to “opt out” of paying the higher rate, you should contact the credit card issuer. They will likely require you to put your request in writing and may require you to close your account to any new transactions. If you opt out, you have the legal right to pay off your existing balance under the original terms.

The longer-term impact is yet to be seen. One thing is for sure; banks will not walk away from the historically high profit credit card business. We’ll be watching for the banks to take some of the following actions:

1. Higher standards for approval: Without the ability to dynamically price for risk, credit card issuers may be more reluctant to take on as much credit risk as they have in the past. People with minor blemishes who have historically been able to get approved for credit cards may find it more difficult, more costly or impossible to get a card.

2. Increase in interest rates: The credit card issuers’ ability to offer the 0% introductory rates and the 9.99% or lower on-going rates was predicated on their ability to increase rates on individual customers as their risk increased. Without the ability to raise interest rates on existing balances, everyone will likely pay a higher rate from the time their account is opened.

3. The return of annual fees: Fierce competition in the industry has largely eliminated annual credit card fees. Look for fees to return as card issuers search for revenue.

4. Less rewarding cards: Whether in the form of cash back or airline miles, rewards programs are a significant expense for credit card issuers. At the very least, expect to pay for these rewards, but also keep an eye out for other ways card issuers may look to manage their costs. For example, you may see new tier structures that mean you are actually earning less per dollar spent or increases in the number of miles required to book an airline ticket.

5. Elimination of grace periods: People who pay their balances off in full each month typically benefit from a 25 to 60 day grace period. That is they borrow money for free each month. Issuers may look to eliminate grace periods and charge interest from the time the purchase is made.

For more commentary and lively discussion on the Credit CARD Law of 2009, please check out the CreditGumbo.com interview with Mark Wlaz and Dave Griffith, two of our credit experts.