Attention Students: You are Gonna Need Permission to Open that Credit Card
Image courtesy of Kimberlyfaye
Yesterday, the Senate passed the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, or the “Credit CARD Act”. This legislation, which has been in the making for quite some time, has some real effect on students. Now, all people under twenty-one years of age will need a cosigner over the age of twenty-one to open a credit card. Or, they will have to prove that they have the ability to pay back any debt accrued by using the credit card.
This is a major change for college students. Traditionally, eighteen-year-old freshman college students have been immediately attacked by credit card offers as soon as they start school. Lacking education on how credit cards work, many of these students jump at the opportunity of opening one of these “magic” cards and end up falling further and further into debt. It will be interesting to see how this will change now that students under twenty-one have to get their parents to cosign with them (or another adult over twenty-one). Will this allow students more time to learn about how credit cards work before amassing huge amounts of debt on them? Or, will this have little effect whatsoever? I guess it would largely depend on the student’s parents’ views on credit card usage.
There are some other changes that will take place in result of the Credit CARD Act. Some of these changes include the following:
- Credit card companies must send out bills at least twenty-one days before the payment due date.
- During the first year after opening a card, the interest rate must remain the same.
- Promotional rates must last at least six months.
- Payments must be applied first to balances with higher interest rates.
- Credit card companies cannot change the interest rate on an existing balance unless the balance is sixty days past due.
- Over-the-limit fees cannot be charged unless the holder has agreed to such charges
- Credit card companies must give holders a forty-five day notice before a change in terms.
- Credit card companies cannot charge fees to make payments by phone, mail, electronic transfer, or the internet (unless it is an expedited service).
- Gift cards must last at least five years.
What do you think about this act? Do you think it will be a positive change for students? Let us know!
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We talked a little about this through your comments on my blog on the subject, but I thought I’d come over here and weigh in!
Basically, there’s some really good stuff in here – both for students and everyone else. And I’m not even entirely against the idea of the “under 21 must have a cosigner” rule. It’s just that I really don’t think it should be government mandated. If an individual credit card company (or every credit card company) wants to set that as their rule, that’s their prerogative. And maybe it will help – we won’t know until it’s been in effect for a few years. But I’m really hoping it doesn’t go into effect as a government regulation.
Also, I fail to see where anyone gets smarter about credit cards between the ages of 18 and 21. I did… but only because I had a credit card and got into trouble with it during that time, and learned from the experience. (But that’s a larger story.) The point is, making it hard for me to get that card during that time wouldn’t have taught me more, and it probably would have taught me less by preventing me from making mistakes during a time in my life when I’m relatively safe and can still be bailed out by parents (in theory… in practice, my own parents didn’t have the money to bail me out, and I had to crawl my way out of credit card debt myself).
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Thanks for stopping by. I guess the reason why I think people may become more educated during that time is that they will be forced to have their parents monitoring their credit. Whenever the parent sees his or her child doing something foolish, the parent can step in and teach his or her kid what he should be doing instead. Of course, that presupposes that the parent has been educated about credit cards and cares about the kid learning about them too. If the parent is uneducated and doesn’t care, then I don’t think it would make a difference one way or the other whether or not the parent was a cosigner on the card. I can definitely understand where you are coming from, though, when you say that you don’t think this sort of thing should be government regulated. I don’t think it should be either. However, the credit card companies have been using deceitful practices for a while. I think this is just the government’s way of trying to get them to straighten out.
I see another side of it, though – if a parent is a cosigner, they have more incentive to bail their kids out (since their own credit is now on the line). So how many parents will bail kids out, instead of saying “You got into this mess, it’s your own credit score and future on the line, you find a way to pay it off!”
I can understand this. College kids relish all kinds of freedom, and the lure of credit cards is strong. Sadly, a lot of kids incur huge balances before learning the Responsibility lesson, so there’s a fair chance of crisis or default. Now, parents will carry some of that burden and it’s likely a good thing. You can’t help your child with money if you don’t know what they are doing. I’ve heard stories of college kids with massive credit card debt and it’s probable that no-one knew but them.
Reform always happens because some people screw up, and this is a typical situation. But it’s important to remember that these are kids learning their way into adulthood. It’s sad when they start with a huge consumer debt in front of them. (Less sad if it’s college loans, but still a potential burden.) Maybe this will help their parents help them. I hope so.
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