New Credit Card Rules May Harm More Than Help

(CBS)  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.

Fed Adopts New Credit Card Rules
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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.

[JayAdler1]

One of my ideas for improving our economy is related to credit card debt which is an implicating component to the nasty recession which I do not think will end until we address this issue. Statistics last week showed that people are putting their high interest cards in a drawer and using debit and cash. A very good sign except that there are millions of Americans who have high balances at 25-8% and additionally cannot make it. So they charge things like groceries and pet food and clothing and go into a hole that they never will emerge from at 28% interest and their budget in the red. Sure they made mistakes but instead of insulting them we can help them. This is a repeat: Institute a payoff rate of 8%, the banks will still profit and then leave the high rates for purchases only which will act as a deterrent. You have to give these people a few hundred dollars credit so thy can eat. That is what I call credit reform. I am not beholden to the banks.

[JayAdler1]

I cheerfully read a good comment above in which the commenter basically revealed what is true. If you never use a credit card, you will have a perfect record of no defaults but no bank or car dealer will sell you anything tied to a new loan and your denial will say "light credit". This is so ridiculous. Someone comes to buy a vehicle with three arbitration cases behind him and he is an A-1 customer over the guy who paid cash for everything. By the way, if you want to establish credit just take out a card and charge up some shirts and take out food and then cut it up. You now have established credit and can get your car loan.

[JayAdler1]

As I said before, my family is only debit and cash. At these high interest rates there is very little that makes sense that you can do with a credit card. In the past when the rate for purchases was 8 or 9% they were useful for big purchases like appliances because you could structure your own time payments. At 20-28% this would make no sense, the refrigerator would be in the landfill or in some Guatemalan families kitchen and you still would be paying it off and swamped with the interest portion of your payment. I hear so many people say they charge up items but always pay the balance at the end of the month. The trouble with this strategy is that if they go to a $200 dinner, that is on the statement period. They are telling you they pay it all back but if they are tight when they get the bill, they will lay off some of it. After awhile they are in hock.Today credit cards are instruments of debt and if you have noticed the minimum payment has been jacked up for those individuals that get into that merry-go round. I have always felt that buying something and paying it all out at the point of purchase is much better. As they used to say, no muss, no fuss and a good nights sleep. You really should have just one Visa or Master Charge. I see people walking around with a boatload of cards. Now that the rates and payments have been elevated if you wind up with something over $40 on each as a monthly obligation, as a regular working person that's going to inflict on your monthly cash flow for your household bills.

[hoosierhysteria]

Conservatives just try to raise credit card interest rates on the middle class while giving the rich tax cuts that the country can not afford.

[JayAdler1]

Mr.Obama by nook or crook could have lowered the credit card rates when he stumped for credit card reform. Is reform 28% interest? Obama fixed it so people had to be notified of rate increases. So what? Millions of Americans are broke, so they get a phone call. Why did you mention Conservatives raising rates, Obama is a Liberal and never tried to lower rates so people could pay their debt off. Keep 28% for purchases.

[AngryMobVoter]

This so-called reform has done nothing but cost me money. Soon after this was passed, Bank Of America starting charging me a "minimum finance charge" even if I am not carrying a balance. This is just another way Obama and the current Congress are COSTING US ALL MONEY.

As soon as Obama made his deal with the drug companies, my drugs started costing me more.

The policies of Obama and the current Congress just keep taking more and more money out of the pockets of the average American.

REMEMBER IN November...VOTE THEM OUT!!!

The Congress and current Administration have put the country on a course of reckless government spending that has mortgaged the future of all Americans especially future generations. The only way to fix this long term structural problem is to create a pro-growth atmosphere for business. To do this we must reduce taxes NOW. How many different taxes does a business or individual pay on a regular basis? We must eliminate number and complexity of all these taxes and reduce the tax burden.

We also need to end the micro-management of business and the economy. Until we GREATLY reduce the tax burden on business and consumers and remove the senseless regulations that accomplish little in relation to the cost they impose, our future is bleak.

REMEMBER IN November...VOTE THEM OUT!!!

[hoosierhysteria]

Sorry but I will be voting to keep them in in November. Banks under the corporatist GOP rule have been screwing the middle class for decades.

[AngryMobVoter]

And you will be voting for people who have and will continue to cost you money out of your pocket and continue to mortgage the future of your children and grandchildren. Nothing this Administration and Congress has done has accomplished anything except cost the average American money and possible his job.

REMEMBER IN November...VOTE THEM OUT!!!

[tsigili]

Actually, that "harm" is a positive.

The American consumer had entirely too much available credit. That is how the average family ramped up over $8000. in credit card debt, in the first place.

It will be much more advisable to reduce credit lines and higher interest rates will help to discourage excessive use of cards, also. Americans have to stop using the level of credit that they have become accustomed to, in recent decades.

[ken1dall]

I'm here from the government, I'm here to help. Sounds like "unintended consequences".......... again!

[AmazingGrce]

The law did a couple of very good things.

Fewer credit card offers to those who cannot afford them
Identified the really preditory companies e.g.

One of the rotten apples has refuse credit cards to people who have a history of paying off their credit cards every month on time - they won't make enough money off those people so they refused to give them card. Now that's bad company and it's also one of the biggest around.

[WiseAsOwl]

I know it seems ridiculous.. and behind the times... and all that... but, the answer is "DON'T SPEND MORE MONEY THAN YOU HAVE" . . . I've used credit cards for more than 30 years, and I haven't paid ANY interest or penalties, except for one month when we plain forgot to pay the credit card bill... I have paid annual fees... Like has already been said, use the credit card ONLY for convenience... NOT because you don't have the money... A hint; If you don't have the money, using a credit card is the LAST thing you should do. A credit card is NOT an emergency reserve.. An emergency reserve is made up of CASH.. If you just can't seem to get a grip on that, cut your credit cards in two and get a debit card... Don't trouble the rest of us because you can't handle your money.... MOST IMPORTANTLY... BE FREE. DON'T BE A SLAVE TO YOUR CREDIT CARD... You're not hoping for a "bail-out", are you????

[Jhihmoac]

I suppose one will just have to live a bit more frugally, and limit the use and number of revolving credit accounts one has...

It has been done, you know...

[Green8019]

Now Congress needs to put a cap on interest rates and stop the usury charges!!