Credit card act works to protect students
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President Barack Obama signed a bill Friday that is going to change the way the credit card industry treats young people.
The Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, is a bill introduced by Sen. Chris Dodd, D-Conn., that will bring protection to students seeking their first credit card, among others.
Credit companies have long viewed college-aged people as a new, fertile ground ready to join the market. But these cards have been given away so easily, with little interest from the companies about the student’s future financial life, and many young people are paying because of it.
What starts out as a smart financial decision for most quickly turns into a burden. By the time they graduate, the average student will have accumulated more than $4,100 in credit card debt and, without a full-time job, paying it off can be almost impossible.
This act will alleviate much of that.
One of the provisions of the bill requires any applicant under the age of 21 to prove they can pay off any charges, or get a cosigner who also would be responsible for the debt. At MSUFCU, a college-aged credit card applicant would need to show they could afford payments of up to $500 a month to be eligible for a card.
This would make it difficult for many students to sign up for a credit card — and that’s why it’s necessary.
Virtually any person can get a credit card without having to jump through many hoops. On college campuses, credit companies have tried to solicit students by offering free T-shirts or even a food coupon to sign up for what could be a lifetime of credit.
If a student can’t be expected to pay off credit debt, they shouldn’t be allowed a card. It might seem like the government is intervening in citizens’ personal finances, but it’s far better than letting people gather large amounts of debt before they even start earning money. This act can protect people from themselves.
Also, this bill prevents credit companies from increasing that debt. The bill would prohibit any retroactive interest rate hikes by the credit company. When credit companies are allowed to hike rates, they put people even deeper in debt. The easiest way to keep people paying money is to make sure they always owe. With this act, credit card companies lose that power.
The most significant problem with this bill is the cosigner. If someone under the age of 21 can’t afford a card, they’re required to get a signature from their parent or a cosigner. The foundation of this logic is sound, but the age limit should be lowered. At 18 years old, people are legally considered adults and should earn the rights of adulthood. If an adult chooses to have a credit card, they should be allowed that responsibility. They should be warned of the potential problems, certainly, but they shouldn’t be outright prohibited.
Finding a cosigner also doesn’t prevent people from accumulating debt. It only splits that debt with another person. The requirement doesn’t eliminate the real problem — mismanagement of money.
The act helps an industry that needs legitimate changes in structure. Making sure people with cards can afford it is a smart move, but the people without one still need financial protection as well.
Commentary
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Steve
(05/25/09 8:54pm)Report
Why does the government have to legislate everyones stupidity? The bottom line is don’t buy what you can’t afford. If you need the plastic sign up for a debit card that keeps you from spending beyond your means. I don’t understand why those of us that only buy what we can afford and haven’t been a dumbass in the past need to bail out the idiots that cannot live within their means. Now the responsible students have to jump through more hoops because of a portion of the population that are too stupid to walk and chew gum at the same time.
Plain Truth
(05/26/09 6:14am)Report
MSU costs about $17,000 per year. Four years = $68,000. If the average student ends up with only $4,100 is credit card debt, I’d say they’re doing pretty good. This bill simply makes it harder for a student to find the funding they need to pay for their overpriced tuition, fees, and books.
Tim
(05/26/09 9:13am)Report
So Steve, you oppose a bill that limits giving credit to only those who deserve it? Giving credit to people that don’t have sufficient income is one of the reasons our economy is where it is. You likely blamed the CRA for the mortgage crisis and now we have an act that does the exact opposite and what do you do? Complain. How refreshing.
Alex
(05/26/09 9:28am)Report
“Why does the government have to legislate everyones stupidity?”
For the same reasons that “the government” – which is really your peers and fellow citizens, not some evil construct feared by conspiracy theorists – has to legislate against other stupid behavior: because it affects the rest of us. When people can no longer pay and the credit companies start to collapse, it becomes hard for responsible consumers to obtain credit – just as is currently the case for obtaining a mortgage or car loan.
Ideally, the credit card companies would have done this on their own, but they’re trying to make every dollar they can. So I’m fine with some extra restrictions being put in place by legislation.
The problem I have with the editorial is this:
“One of the provisions of the bill requires any applicant under the age of 21 to prove they can pay off any charges, or get a cosigner who also would be responsible for the debt. At MSUFCU, a college-aged credit card applicant would need to show they could afford payments of up to $500 a month to be eligible for a card. This would make it difficult for many students to sign up for a credit card — and that’s why it’s necessary.”
BUT:
If an adult chooses to have a credit card, they should be allowed that responsibility. They should be warned of the potential problems, certainly, but they shouldn’t be outright prohibited.
So which is it, Snews? Should there be restrictions or not? These two arguments make it sound like 4 different people wrote this article – which I suppose is probably the case.
Steve
(05/26/09 11:47am)Report
“Giving credit to people that don’t have sufficient income is one of the reasons our economy is where it is.”
And as a free-market economy, we let those companies that engaged in that stupid behavior die, not bail them out. It’s survival of the fittest.
Alex
(05/26/09 1:01pm)Report
“And as a free-market economy, we let those companies that engaged in that stupid behavior die, not bail them out. It’s survival of the fittest.”
I don’t know whether you are mean, ignorant, or just naive. Said companies are not run by AI entities, but by people. You’d rather see a large company collapse completely and put another thousand people (most of whom didn’t make the poor decisions) on unemployment? Dependent on credit cards for survival?
Yeah, that’s a much better idea than shoring up the existing structure. /sarcasm
Good luck with your crusade to ban drunken driving laws too – since, after all, the dumb people will kill themselves and ensure “survival of the fittest.” Never mind all that messy collateral damage.
Tim
(05/26/09 1:44pm)Report
Steve:
Free Market
Spoon
(05/26/09 2:18pm)Report
I’m a former student who was basically given a $2k credit card for opening an account at MSUFCU his freshman year. Being an idiot at the time, I treated it like a $1k spending account until about partway through my sophomore year. Each time I approached the limit, MSUFCU would extend the limit without my permission, and even a few times without even informing me. By my senior year, I wrapped up about $8k on that card, despite having a decent part time job and wiser spending habits. Now that I have a full time job and a good salary, I’m finally starting to pay it off in large chunks, but it’s just one more bill that I have to worry about each month.
That said, I wouldn’t have made it through college without that card. Because I didn’t come from a lot of money and have mommy and daddy take care of me, I’d usually have to pay rent and utilities with the card. Having the government take cards away from students isn’t the answer. If the government can’t sleep without mandating something, how about they mandate schools to emphasize personal economics more? Make high school seniors or college freshmen take a personal finance course or something. Then the free market system will work itself out.
mara-kame
(05/29/09 9:46am)Report
“Having the government take cards away from students isn’t the answer. If the government can’t sleep without mandating something, how about they mandate schools to emphasize personal economics more? Make high school seniors or college freshmen take a personal finance course or something. Then the free market system will work itself out.”
word.
A credit limit is what you can spend, not what you should spend.
Don’t spend more than you can afford. Credit must be paid back.
Credit cards are important; they enable you to make larger purchases; and are helpful for emergency situations.
When used responsibly, you will establish credit. A good credit history is the key to getting approved for future loans, auto financing, and mortgages.