Credit Card Reform Coming, But Will it Help?

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President Barack Obama signed a sweeping credit card reform bill, Friday, that promises to revolutionize the credit card card industry.
        
The bill will prohibit abrupt increases in interest rates and so-called "double-cycle" billing.  It will aslo ban marketing of credit cards to people under 18, and prohibit companies from giving cards to those under 21 unless they can prove they have the means to pay the debt.

Click play for Carolyn Castleberry's report, followed by analysis from Phil Kerpin of Americans for Prosperity.

The new rules are being hailed as a huge boost for consumers.

"This is a major, major breakthrough and a success story for the average American dealing with this financial crisis," said Robert Manning, author of Credit Card Nation.

But is it, really?

The bill requires companies to give 45-days notice before raising interest rates, puts limits on penalty fees and consumers have to be at least 60 days late in payments before a company can raise their interest rates.

While that's good news for some, it's bad news for others.

Banks used to raise rates mainly on their riskiest customers.  Now,  banks will have to spread that risk around, which means that good customers who've paid their bills on time could end up paying more and getting less. 

"History has shown that when the government imposes price controls, consumers have fewer choices and they pay more," explained Nessa Feddis of the American Bankers Association.

The regulations could mean paying more in new or higher annual fees, and customers may have to say goodbye to the 30-day grace period before interest charges kick in.  In fact, interest could begin to accrue from the moment you swipe your card.

The new rules won't take effect for nine months, but because of the ongoing credit crunch, good customers have already been getting squeezed.

"We've been watching the banks raise the rates. And we've been watching them raise them, not on people who defaulted, not on people who are in some kind of trouble," said Elizabeth Warren of Harvard Law School.  "We've been watching them raise them on good customers.  It's already happening."

Some economists even warn that restricting credit card lending will do more harm than good to an already struggling economy.

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Carolyn Castleberry

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Author, news anchor, and multi-faceted speaker, Carolyn Castleberry brings a fresh perspective to life's everyday challenges. Carolyn is an internationally recognized author on money and time management, and a former co-host of CBN's Living the Life on ABC Family Channel. Her reports focus on bringing faith and life together.