By now, you may have heard of a little something called the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, which was just recently passed by the US Senate. It differs a bit from it’s predecessor, the Credit Cardholders’ Bill of Rights Act of 2009, which was passed by the House of Representatives. So there’s some reconciling that still has to occur before the bill can be passed to President Obama to sign.
I think there’s a lot of good in these proposals, but the New York Times article on the subject, Senate Passes Credit Card Restrictions, had one line in it that caught me off guard:
“It would be harder for companies to issue cards to people under age 21.”
Wait, what? Ok, I understand the motivation here — really, I do. The amount of debt that college students graduate with can be staggering. Credit card companies hawking awful cards under the banner of “Free T-Shirt!” on college campuses… well, that’s pretty bad. But regulation to make it harder for young people to get access to credit? Is that really what we need?
Searching for more information, I asked folks on Twitter if they knew the details of this part of the bill, since the NY Times only had that one sentence on it. Joe C helpfully pointed me to the article Democrats Vow Not to Bend to Credit Card Companies, which explained a bit more about the proposed regulation:
“The bill also would prohibit lenders from giving cards to people under 21 unless a parent or guardian accepts responsibility for the debt or the individual can prove they have the means to pay it back.”
That all sounds well and good… but what does “prove they have the means to pay it back” mean? Don’t we already have to list household income when we apply for credit cards? Again, I get where this is coming from. But it doesn’t seem like it’s the right way to go about this. Let’s face it — parents don’t always act in the best interest of their children. Some people turn 18 and need to start making their own decisions right away in order to get on the right track.
There’s a lot of ways in which we young adults aren’t being treated like adults yet. The Department of Education doesn’t consider us independent until we turn 24 (or get married, or join the military). We either can’t rent a car until age 25, or we have to pay through the nose to do so. And the problem here is not necessarily that college students/young adults shouldn’t be given credit cards. The problem is that some of us don’t act like adults when we get that first credit card.
But tell me: how is treating us like we’re not adults going to teach us to act like adults?
Of course, this is all just my opinion. And yes, there are several good things in the CARD Act that I didn’t touch on here. But based on everything I’ve seen, there’s already an effective remedy for curbing credit card abuse in college. It’s something my college did, and I would like to see more colleges do: they banned credit cards from advertising or soliciting on campus. That way, only those of us who really wanted a credit card on its own merits went out and applied for one. This severely cut down on the number of students at my school who even had credit cards, let alone abused them.
What’s your take? Do you think the proposed regulation would be helpful? It’s okay to disagree with me! (Just keep the debate dial turned somewhere around “friendly and informative,” please!)
Olivia @Independent Beginnings says
I also wrote about this today. In general, I think it is a good move, although I also do not quite understand what “the means to pay it back” means. It seems a little vague. The reality of the matter is that there are way more students who are irresponsible with credit cards than responsible with them. I know that I signed up for my first credit card because I got a free pizza for doing so. Luckily for me, the card happened to be quite a good fit for me and I only use it when I know I can go home and pay it off right away. Many other students do not do this, though, and end up in boatloads of trouble.
The biggest reason I like this act is because it encourages people to become educated about credit cards. If students have to have their parents cosign on their card, you can bet that many parents won’t want their own credit scores hurt because of their child. They will teach them how to be responsible with it. Plus, if the parents do not teach their child about credit cards, the student is no worse off than he or she would have been if the parent had not cosigned.
I agree that there are many ways that college students are not treated like adults. We should be able to rent cars and do everything else that older adults get to do. However, in this particular case I think we brought this upon ourselves. Maybe this will be our wake-up call that we need to actually grow up to be treated like adults.
I think you make some good points, Olivia. But I think there’s a problem with saying “we brought this upon ourselves,” and that is that the current student body is ever-changing. This regulation isn’t based on what the current freshman class will do, it’s based on what graduating seniors like myself did. And honestly, I’m not sure how it teaches anyone to be responsible. It just seems like shaking a finger and saying “the people before you weren’t responsible, and you wouldn’t be either. So unless mommy or daddy says so, you don’t get a chance.” It seems counter intuitive to make people ask permission to try their hand at responsibility.
And yeah, “means to pay it back” is seriously vague. Does that mean having the amount of cash on hand equal to your credit limit? Ok, but I could max it out one month, pay it off… and then be out of savings and max it out again the next month. Does it mean having a certain level of income? In fact… is there any indicator credit card companies can use to see who will be able to make payments (that they’re not already using)?
Enemy of Debt says
Stephanie you are so right! This is a terrific post! Yur experience with credit cards you mentioned on Bakers post sum it up pretty good!
“Basically, I don’t think it’s the age that’s the problem, it’s the lack of education. And this regulation won’t educate anyone, it will just make things difficult. When I got into credit card debt, it wasn’t because I was 20 (and not 21!), it was because of my situation – I was going to a school that was too expensive for me, and I was going into credit card debt to pay for my school projects and groceries.”
Education is key and there is some talk about that in some schools. I wrote a blog today about an article I saw that said Cincinnati schools plan to implement a money management curriculum by 2014, which seems kind of far away to me. I have some concerns about that too, which I stated in my blog. Bottom line is that parents need to learn how to manage money so they can teach their kids how to, because I believe that kids do what they learn at home not what they learn at school. Parents provide the example, and the schools should reinforce the basics.
Again great blog!!
Michael Harr @ Wealth...Uncomplicated says
@Stephanie – There is little doubt that age doesn’t equate to education and I doubt seriously that these measures will curb credit card problems for young people. The best parts of the bill were in the elimination of fees for payments, reduction of balance based on highest APR first, and the 60 day ‘grace period’ before hiking rates. Even though these are good measures, the bill fails miserably when viewed through the lens of financial literacy and personal responsibility.
Adding an age requirement is foolish and I’m sure the credit card companies will be laughing all the way to the bank. Since co-signers will be required, they will be better able to collect in the end. I can see a scenario playing out thousands of times over under these new regulations where student gets card, student changes the address and phone number, tells parents the card doesn’t exist, card gets maxed out, and poof…we’re exactly where we are today. Of course, by the time the unlucky co-signer finds out, the account is past due has a huge balance, sky high interest rate, and a healthy dose of fees to boot.
I hate government regulation about as much as credit card companies. There were some steps forward, but just as many back in this legislation. Leave to Congress to step in it.
Interesting thoughts, Stephanie. I had been under the impression that the major drive behind this legislation (or at least, the restrictions on those who are under 21) was to prevent situations where credit card companies would offer cards to college students, with the assumption that, should the students be unable to pay off the bill, the parents will gladly step in to prevent their children from being saddled with debt and a bad credit score. Frankly, I don’t think these qualifications are any different than those for us above 21; if I can’t prove that I can repay the debt I accrue (by showing I have a regular job with adequate income, for example), I have to get someone to cosign my credit application.
Now, it is true that parents don’t always act in the best interest of their children, and that sometimes children turn eighteen and have to repair their finances. But preventing that from happening would require more in-depth legislation than exists in this particular law. Frankly, I’m not sure how exactly we’d go about legislating against just plain bad parenting; but I doubt it would be easy.
Also, because this is the first time I’m seeing it, nice looking redesigned site.
I was 25ish when I got my credit card. Everything went pretty good for a while. I paid it off every month never carried a balance. Then, for some reason, I started using it for everything just to get the cash back. A couple months went by where I only paid the minimum and boom! I maxed it out. I have great will power but somehow, I am just not a credit card person. Can’t control myself. I don’t think it has anything to do with age.
I agree that education has more to do with it than age. Maybe they should have included manditory classes in highschool on finance and how credit cards and credit in general really works!
Olivia @Independent Beginnings says
That is a good point. I am sure some parents will bail their children out over and over again. However, I don’t think it is bad for the parents to bail their children out once. If they use the opportunity to teach their children a lesson and warn them that next time they will not bail them out, then I think this can be quite useful. I am sure people will abuse it, though. There are definitely pros and cons.
S Hunter says
Credit Counseling classes should be mandatory in high school. Wording on these forms are completely confusing and need to be explained in layman’s terms.
This bill is going to make it extremely difficult for some children to get an education. My parents have always had horrible credit and if I hadn’t worked so hard to develop a good credit line as soon as I turned 18, I wouldn’t have been able to get loans to go to school or get approved for a place to live. Especially with all the recession related credit troubles, many young adults have parents with poor credit history or parents that are wary of adding any debt to their credit report. How are these young adults supposed to afford increased tuition with such limited access to credit? This bill will only increase the number of children without the means to receive an education.
Michael Harr @ Wealth...Uncomplicated says
@Laura – Don’t forget that regardless of credit history, ALL prospective college students who have not previously defaulted on a federal Stafford loan are eligible to receive one. In addition, there are plenty of financing options available through states, educational institutions, and others. It is not and has not been a problem for any student to get a college education in the last couple of decades. The myth that college is out of reach has been out there for a great while, but it simply isn’t true and hasn’t been true for a long time.
This doesn’t mean to say that any student can attend any college/university they choose. Rather, they have access to quality institutions that are under a certain level of cost–typically in-state schools. While one can argue that access to all schools should be available, it ultimately doesn’t matter for undergrad with a few exceptions.
As for being approved for a place to live, the workaround for this is simple–cash deposit. Just because someone has bad credit, it doesn’t mean that they are suddenly homeless. It just means that the landlord or lessor needs more security up front in the form of a cash deposit.
Based on your comment, I can only make a quick assessment that you were responsible financially early, took out student loans above the Stafford limits, and attended an institution that was more expensive than a state school or didn’t work while going to school to offset the additional cost. Regardless of your path, you presumably ended with a degree.
Even with this bill, it is unlikely that anyone will be denied a degree, but the path will likely change a little bit compared to when you went through school. The path will now involve more cost/benefit analysis from prospective students and perceived sacrifices in educational quality. I say perceived because unless you are attending a major name college/university, it is unlikely that the name of the institution on the diploma will matter. It’s the completion of a degree program that matters to employers and after one has attained a certain level of experience, the degree’s importance is significantly diminished.
While I agree that this bill is…well…lacking, I don’t foresee any type of problem for prospective collegiates. Besides, with Obama’s stimulus, a $2,500 tax CREDIT is already available making the current federal aid package the most attractive it’s ever been.
Personally, I think this sucks. When I went to college I wondered what credit cards were, since my parents never had one. They were poor, and had almost no credit. So I educated myself, and saw a loophole that I then exploited.
The credit companies were happy to give me a piddly $500 credit card, with no proof of anything. (The fact that student loans counted as “income” on the forms made me look rich.) I then proceeded to *yoink* run off with my student loan check from the bursars the first day they were available, and deposit it with the credit card company as a payment (so I had a positive balance). A week later, I’d wander back to the bursars and pay my bill with my credit card.
By my second year, I had enough credit that I could take the check and hand them the card (which they still didn’t like). And by time I graduated, I had a gold card, lots of credit, and a great credit score. It made life a lot easier right out of school, especially since I had $60K in student loans at the time and otherwise would have never gotten credit from anywhere.
With the current law in place? I’d have been SOL trying to get any credit, and would have probably still had 0 credit history exiting college. In essence this makes it harder for poor college kids to build up their credit. And I’m so happy they’re protecting college kids from debt! I mean, that two or three grand in credit card debt could ruin you! Especially on top of the $10K to $90K you’ll have in student loans you’ll have right out of college (public vs private). Really?
This is simply the WORST bill passed aside from the US Privacy Act. I’m 19 years old going through my 2nd year in college. I think it’s complete insanity that I can’t get a credit cart with at *least* a $300 credit limit without asking my mom or dad to cosign with me…but I damn sure can go to the gas station and buy some Newports (I don’t smoke, but you know what I mean.) to blacken my lungs and shorten my life without holding my parents’ hand.
I’d say I’m more responsible than most teens (Even adults, sadly.) at my age. I graduated from high school, I’m pursuing a Bachelor’s degree, I don’t have any bastard children, I don’t have any debts, I babysit the children of other people, I didn’t steal the $3000 I was given to help transfer money to a relative…so why is it so hard to get a credit card now? I know my salary isn’t very high, but I don’t really spend my money aside from gas, so I’d be able to pay AT LEAST the minimum on my card payments, which would have just went to buying textbooks, anyway.
The whole point of a credit card is to build credit history, and I’d really like to start building that while I’m in college so I’m off to a good start. I’m VERY good with my money, and I knew what credit cards were since I was 10 years old, not to mention taking classes that taught me how to use them, and what interest was and how it worked. Without credit I’m basically butt-raped with a spiked condom in this society. I really don’t want to have to start my credit at that car dealership.