UPDATE 2-Obama signs sweeping credit card reform bill

 * Card issuers have until Feb 2010 to adopt new rules
 * Interest rates seen rising, credit falling
 * Bank group sees transformation of card industry
 (Adds ABA, Dodd, analyst quotes, details, background)
 WASHINGTON, May 22 (Reuters) - U.S. President Barack Obama
signed into law on Friday sweeping reforms that restrict credit
card interest rates and fees, marking a victory for Democrats
trying to help recession-weary consumers and a setback for
banks seeking to retain sorely-needed revenues.
 The law is expected to hurt profits of major card issuers
such as Citigroup Inc C.N, Bank of America Corp BAC.N,
JPMorgan Chase & Co JPM.N and Capital One Financial Corp
COF.N. Banks say the changes may cut the flow of credit to
consumers because it will make it more difficult for issuers to
set rates based on the risk their customers pose.
 "With this bill we are putting in place some common sense
reforms designed to protect consumers," Obama said at a signing
ceremony at the White House.
 "We're not going to be giving people a free pass and we
expect consumers to live within their means and pay what they
owe. But we also expect financial institutions to act with the
same sense of responsibility that the American people aspire to
in their own lives," he said.
 Enactment marks the crest of a backlash against the card
industry after years of rate and fee hikes and aggressive
marketing programs that have angered consumers, analysts said.
 The law largely codifies a set of rules issued by the
Federal Reserve last year and puts them into effect in February
2010, five months sooner than the Fed had planned.
 It also represents the first major financial regulation
reform completed by Obama as he tackles a rewrite of the rules
of banking and the markets to better protect consumers and
investors, and prevent another credit crisis.
 The same day Obama signed the law, banks were also hit with
a one-time $5.6 billion fee by the Federal Deposit Insurance
Corp to replenish its dwindling deposit insurance fund. The
FDIC could impose additional fees later if needed.
 The American Bankers Association, which represents the
biggest credit card issuers, said the law will transform the
credit card industry.
 "It will be a very different product, a lot simpler product
which is what people want," ABA President Ed Yingling told
Reuters. "It does change the economics. It's now a longer-term
loan, it's not a short-term loan any more."
 The law sharply restricts credit card issuers' ability to
raise interest rates on existing balances, to charge certain
fees and to slap cardholders with penalties. Cardholders will
now get a 45-day notice before their interest rate is changed.
 The industry could potentially lose about $15 billion in
penalty fees each year, according to White House estimates.
 The new law will also help consumers carrying card balances
as long as they don't fall behind on payments by more than 60
days. After 60 days, their rates may increase.
 Americans owed more than $945 billion in credit card debt
in March. The amount has fallen during the current recession
but credit card indebtedness is still about 25 percent higher
than a decade ago.
 The reforms won wide backing among lawmakers, who said
constituents were tired of hidden charges from card issuers --
especially from those U.S. banks that received billions of
dollars in taxpayer bailouts.
 "Today is the day we finally make credit card companies
accountable to their customers and responsible for their
actions," said Senate Banking Committee Chairman Christopher
Dodd who shepherded the bill through the Senate.
 But banks say the reforms come at a cost.
 Banks have repeatedly warned higher interest rates are
likely to result because it will be more difficult to set rates
based on the risk that customers pose. The higher rates mean
less credit available for consumers, they say.
 The industry is already experiencing heavy losses from the
90 million households that carry cards. The losses are expected
to worsen as the year goes on.
 "A lot of consumers have a false sense of security they're
going to get relief," said Curtis Arnold, founder of in Little Rock, Arkansas. "The average rate now
is 13.8 percent, and I could see it going north of 15 percent
by early next year."
 Issuers can try to make up lost revenue from customers who
are new or have good credit -- about one-third of U.S.
cardholders generally pay their bills on time.
 Banks may also reduce credit limits, or make it harder to
obtain card-affiliated rewards, Arnold said. And others may
return to charging an annual fee, now charged by only one in
five cards, he said.
 *ANALYSIS-Credit card reforms not all good [ID:nN22387596]
 *FACTBOX-Key provisions of card reforms    [ID:nN20505135]
 *FACTBOX-Canada sets new card regulations  [ID:nN21418880]
 *Big U.S. banks shoulder more cleanup costs[ID:nN22379892]
 (Additional reporting by Jon Stempel in Chicago; Editing by
Eric Walsh and Vicki Allen)