New Credit Card Rules May Harm More Than Help

There are 381 million credit card accounts in the United States. New regulations take effect this week including a cap on most late payment fees at $25 and ban on fees on inactive cards.

But credit card interest rates have hit their highest levels in nine years. The average rate is now 14.7 percent. A year ago it was just above 13 percent. The spike in rates has been caused by the new credit card regulations, reports CBS News business correspondent Anthony Mason.

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Those regulations limit the banks' ability to assess penalty fees. Under the same law, lenders now also have to give at least 45 days notice before they can raise interest rates on delinquent borrowers, so banks are simply charging higher rates up front to reduce their risk.

At the same time, card issuers are also cutting back on the amount of credit they extend to borrowers. The average credit line on a new card is now about $3900. A year ago it was more than $4400. That's a drop of 11 percent.

All of this may force Americans to be more frugal but it's not going to help an economy that is struggling to pick up speed.

Credit card reform is supposed to protect consumers but these changes seem more like a cost than a benefit.

Some consumer advocates say the new regulations are protecting delinquent borrowers but punishing the good customers who pay their bills on time. The banks are losing the money they made from fees so they're trying to make it back somewhere else.

The major changes in regulations that go into effect Monday are:

• The ban on fees for inactive cards;
• The cap on late payments;
• An explanation of rate increases - if your annual percentage rate (APR) goes up, you must be told why;
• Your credit card company must re-evaluate interest rate increases it makes every six months. If it's appropriate, your credit card company must lower your interest rates within 45 days of completing an evaluation.

For a complete explanation of the new rules, visit the Federal Reserve website here.
  • Anthony Mason

    CBS News senior business and economics correspondent; Co-host, "CBS This Morning: Saturday"

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