The new Bill of Rights legislation signed by President Obama last Friday will probably do more harm than good to an already battle-scarred consumer. The outcome might even accelerate the trend in tight credit as subprime borrowers are denied credit card access and deepen the contraction in spending since late 2008.

Consumer spending, which crashed in Q4 2008, has recently posted some upside momentum in April. But the trend is undeniably bearish as Americans grow more frugal, reduce debt levels and rebuild battered savings again following massive losses on financial assets and housing since late 2007.

The new bill aims at preventing credit cards from gouging consumers – admittedly a good thing since credit card companies have gone mad charging 18%-plus interest rates on unpaid balances for years while prime lending rates were in the mid-single digits. The spread, or difference in interest rates levied by credit cards, is almost insanity, punishing borrowers while earning a fortune on those interest rate premiums in the process.

But the new law will also close the door on subprime borrowers who previously relied on credit cards to provide intermittent financing between paychecks. This bill might just do the opposite or prevent borrowers from accessing desperate credit amid a severe recession.

Available consumer credit contracted by a record $11.1 billion dollars in March, according to the Federal Reserve. That drop is the largest since 1990 and portends to severe headwinds facing cash starved consumers as the new bill hits credit card companies and their customers.

Unfortunately, the unintended consequences might be less credit available by money-center banks and credit card issuers. That’s exactly the wrong prescription for an economy trying to mend its way to recovery this quarter after a huge contraction in Q1 output.

The consumer has started to show signs of life since April and that’s bullish for the economy. Yet, I imagine this is only a blip as sustainable long-term domestic consumption will remain impaired by growing job losses and personal balance sheet repair. The government cannot supplement organic consumption indefinitely through monster-sized fiscal spending packages; at some point, the air in this balloon will pop. Consumers are just not spending like they did prior to 2008.

In the end, new credit card lending standards and the interest rates superimposed by these companies will probably accelerate the trend in deflation and tight credit. This is the right bill but at the wrong time.