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Credit Cards: Reform Bill Bad for Credit Card Holders?

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credit-cards-reform-bill-bad-for-credit-card-holdersThe credit card reform bill which was passed by the Senate yesterday is supposed to help protect credit card holders from unfair practices by banks and credit card issuers.

Now there is talk that the new bill  will hurt credit card holders who have good credit and payoff their credit card bills every month.

Banks and credit card issuers have been saying that they have to make up for lost revenue if those erroneous fees and practices are curtailed or restricted. They say they will have to cut back on rewards programs, start charging annual fees for all credit cards and perhaps even begin charing interest immediately after a purchase is made.

Hey, wait a minute, how can this be? Is Washington passing laws again that hurt consumers instead of protect consumers? Not likely! Credit card issuers were probably just throwing idle threats around trying to water down and limit the new regulations.

Considering that tax payers had to bailout the banking industry recently, banks and credit card issuers really don't have much sway in Washington these days to limit the new laws, though they did succeed in blocking a 15 percent interest rate cap on credit cards.

Most of the threats are unlikely to come to fruition. Can you imagine anyone who pays off a credit card bill every month using a card that would incur interest charges the minute they make a purchase? Not me. I would close my account and shred that card right away.

At this point, most of my credit cards do not have annual fees. If issuers starting charging annual fees I would close several of those accounts. If you're like me, you probably have more credit cards than you actually use. I prefer to stick with a card that offers the best rewards program, while the others sit unused in a drawer.  Closing several accounts at once could negatively impact your credit score, especially with cards you had the longest. If possible, I would gradually close accounts over time to limit the hit to your credit score.

As for rewards programs, that's one of the ways credit card issuers attempt to differentiate their cards from other cards. Even with the new credit card laws in place, competition is still fierce for consumers with good or excellent credit. Banks and issuers make a ton of money charging merchants fees when consumers use cards. Fees can range between two percent and five percent, plus a charge for each transaction.
Author: Brian McKay
May 20th, 2009