Credit bill hits young borrowers

A new bill signed into law by President Barack Obama Friday attempts to regulate the credit card industry and protect consumers, but places restrictions on college students that some say are overprotective and could be harmful in the long run.

The Credit Card Accountability, Responsibility and Disclosure Act, which passed in both the U.S. House of Representatives and Senate with large majorities, attempts to prevent credit card companies from taking advantage of consumers and is expected to have a large impact on the way college students open and use credit cards. 

Specifically, the Credit CARD Act prevents credit card companies from offering gifts on or near college campuses in exchange for applications, and requires any colleges to make public any agreements they may have with credit card companies. 

“Colleges should not be encouraging their students to sign up for products with high interest rates and fees that can get them bogged down in debt,” Sen. Dianne Feinstein, D-Calif., who voted in favor of the bill, said in a press release. “Young consumers often do not have the knowledge and experience to manage their credit wisely and as a result can get into deep financial trouble that can stay with them for decades.”

The bill also stipulates that anyone between the ages of 18 to 21 looking to open a credit card either prove they can pay their own expenses or have a parent or guardian co-sign for the card and assume joint liability. If a parent or guardian co-signs for the card, that parent must also approve all changes to the credit limit.

With credit card use increasing among young people, many believe the Credit CARD Act will help students avoid incurring unnecessary debt. Others, however, worry that the decrease in the availability of credit at a time when students are relying on it most will lead young people to find other ways to finance their education and their lifestyles. Some are also concerned that the bill decreases the sense of financial responsibility in young people. 

Mark Calabria, director of financial regulation studies for the Cato Institute, a non-profit public policy research foundation, said he was concerned about the effects the bill will have and said he believes some middle ground could have been reached. 

One problem with the bill, Calabria said, is that it will make college students less financially sophisticated.

“You really aren’t getting at the ability for people to learn how to manage credit,” Calabria said. “Regardless of your age, there will always be a day that will be your first day or your first year having a credit card. And it’s like anything else … if you’ve never had one you don’t know how to use one in a broad sense. So the question is, just because this person’s 25 rather than 21, are they really that much more sophisticated about it, or that much more knowledgeable about it if they haven’t experienced it?” 

A recent study published by student lender Sallie Mae showed that students are having more trouble handling their credit card debt than ever before. The study, which surveyed students who had applied for a private loan through Sallie Mae, found that only 17 percent of students who reported using a credit card paid of all their cards each month. Of the graduating seniors surveyed, the average debt was $4,100.

The study also found that one-third of credit card users did not discuss their credit card use with their parents. Proponents of the bill hope that requiring this section of the student population to communicate with their parents will decrease the average amount of debt and encourage responsible use of credit cards. 

Gail Cunningham, vice president for public relations at the National Foundation for Credit Counseling, supported the bill, saying that requiring parent involvement will help ease students in to using a credit card. 

“[Students after college] are just older and they’ve had access to credit so hopefully they’ve responsibly used it,” Cunningham said. “What I like about the bill is that the parents can go online any time of the day or night and review the student’s spending and if they’re not playing by the rules they can remove him as an authorized user. So, to me it’s the best of both worlds — they have access to credit, the opportunity to manage it responsibly and get a few years under their belt of maturity before they get their own card.”

While students said they understood the reason for the new requirements, and agreed there was a problem with college students overspending, some did not agree with the bill.

Isaac Muscanto, a sophomore majoring in cinema-television critical studies, said he was glad he already had a credit card and would not need to give his parents joint ownership. He said he found the new regulations to be too protective of students.

“It’s natural students are going to put themselves at risk, but at 18 that is their responsibility,” Muscanto said.

Ron Hill, a freshman majoring in cinema-television production, said he is considering getting a credit card to use for emergencies that may arise when he gets to college. Though Hill said he did not think he would be affected much by the bill, he did not entirely agree with it.

“My generation does have a problem with controlling their spending and credit cards can dangerous for someone my age,” Hill said. “Clearly a credit card is not something that should be entered into lightly, and parents should be involved with their children’s spending on some level — I’m just not sure this bill is the right way to go about it.”

Lauren Dawson, a sophomore majoring in international relations, already has her own credit card, but said she doesn’t think the regulations will change much in the long run.

“College students are graduating with higher and higher levels of credit card debt because they are using them improperly. I don’t think having parents’ oversee the card would change anything, though,” Dawson said.

Like many students, Calabria said he thought that a compromise could have been met with the bill, and that a cap on credit extended to students might have been a better solution.

Will Price, a sophomore majoring in engineering, agreed that the bill was not the right solution.

“It sounds like they are well-intentioned, but I think it’s a restriction of freedom,” Price said.