Credit Card Paternalism

Credit card reform is long overdue. The credit card issuers' drive for profits caused them to lose any sight of fair play. As a result cardholders have been abused for years.

And now, in an accelerated and spasmodic fashion, our leaders have delivered us from credit card hell by enacting a new law: The Credit Cardholders Bill of Rights.

Today's posting is about one provision in this new law: a section of nutty lawmaking that makes it harder for anyone under the age of 21 to get a credit card. The new law prohibits card companies from issuing cards to "youngsters" without parental approval or a determination of the prospective cardholder's financial wherewithal. This law will seriously impact the ability of college students (not working) to get credit cards until their senior year.

To me this kind of paternalism is ridiculous. Our young adults can vote, serve in the military and consume alcohol or tobacco. But, they are not capable of fighting off credit cards?

Yes, some young people get into trouble with credit cards. But, there are also many college students who use the convenience of credit cards responsibly. And, here's a crazy idea: how about our institutions of higher learning spending a little bit of time and energy educating young adults about the potential use and abuse of credit cards!!

By delaying the issuance of credit cards to young adults, we are not helping them. In fact, we are making it harder for them to build up a credit history and favorable credit score. We are impinging on their ability to access the convenience of cards and we are tying them to their parents' finances for periods beyond reason.

Some of the other provisions of the new law are also paternalistic (no late fees unless cardholders say they want overdraft protection) but at least understandable. This age requirement, however, is to me an example of how our leaders never seem to act quickly enough and then when they do get around to acting, make up for lost time by going way too far.

Jim Randel is the author of The Skinny on Credit Cards: How to Master the Credit Card Game (RAND, 2009).

 

Follow Jim Randel on Twitter: www.twitter.com/jimrandel

Comments

[Rule Of Law]

Yeah, and kids can have babies at 13, but we shouldn't be encouraging it.

[confidance government]

Thanks, finally somebody that realizes that when we are treated as adults we will rise to occassion. I had my own problems with credit cards and accumulated a fair amount of debt while I was in college, but I am more than capable of handling these problems without "state paternalis­m."

Politicians and the general public have underestimated the strength, resolve, and abilities of my generation.

[KillTheMessenger]

If you had trouble with credit cards recently, you are still about ten years away from being an adult. And it really doesn't matter how old you are. You could be ninety and still not be financially mature.

[confidance government]

Let me understand; are you suggesting that we have a sliding scale of state paternalism based on age? Or we are all equally incapable of looking out for ourselves and learning from our experiences?

[texastrixie]

You look at least as old as me - a typical (early) baby-boomer. We grew up without credit. We had to work hard to establish credit. I can still remember my first credit card, a Sears card, because that was the easiest to get. I had bought a few things on "credit" simply to establish my credit-worthiness.

We don't allow teenagers to drink legally, and I'm also for keeping that rule. This doesn't say a young person can't have a credit card, it only says they have to have parental involvement if it is to be approved. This seems only fair since the credit card companies rely on the fact that most parents will pay off an outstanding credit card balance (if they can) rather than let their kid lose their credit rating. It only seems fair that we give them a "heads-up" that they need to plan for this expense!

Learning to save for something when you are just starting out seems to me to be the best lesson we could teach young people. Certainly a skill that looks like it will be making a comeback in all our lives from now on.

We are in this mess because of people's irresponsible use of debt. Why would you argue to allow more people to make the same mistake. If you're a smart, sensible young person, you will understand why you should save for something (and that new pink blouse isn't one of t hem).

[land2341]

America, long has not, and apparently still cannot, decide when one becomes an adult. You can join the military and be sent to a foreign country to shoot people, but you can't have a beer. You can get married and have children, but you can't get into debt.

It isn't that we should not prevent credit card companies from preying on the young adult, we should. It is just that we need to take a serious look at how prepared we make them to deal with adult issues. Between 18 and 21 is legal limbo for many young Americans. Who decided what they were old enough to determine for themselves? Credit card companies DID prey on young adults with teaser rates and ridiculous offers that weren't true in 30 days, but are they adults or aren't they?

[jmpurser]

It may be "ridiculous" to you because you've got no real concept of reality. Kids are graduating from college with record amounts of debt BEFORE we count the credit cards. They're working outside jobs more and the state is picking up less of the tuition. In short, college students are a victim class and the credit card companies are the vultures circling above.

[gfs5541]

Mr. Randal:

What you call "Credit Card Paternalism" I call "One less way for a college student or a teenager to get into debt before the age of 21". As a young adult, I learn a hard lesson, one that should never be replicated. This is one thing young adults don't need. If I was a parent, I would give my kid(s) a prepaid credit/debit card and either supply him/her with an allowance or not and they can get a part time job to fill that card up. So I invite you and others to visit this website, one that has taught me to live within my means:

http://www.stopbuyingsh*tyoucantaffordyoudumbbrokeazzidi0t.com

[confidance government]

I would suggest that you will have a fair amount of financial success in your life due to the hard lessons you learned. You merely paid in advance for the lesson.

[NABNYC]

This provision was a give-away to the credit card companies. All it was intended to do is to force parents to co-sign for the credit cards of their adult children, ages 18-21, so the parents will now become financially liable to pay those credit card debts. And lots of parents will unfortunately sign, which is a shame, because they are not responsible for their children's obligations.

I'm sure credit card companies have a higher default level for credit cards given to young people who, among other things, change jobs, move, and aren't yet good at handling money. Now the credit card company won't worry about collecting -- they'll just go grab mom and dad's bank accounts.

I would tell every parent out there: DON'T DO IT. IT'S A CON. IT'S INTENDED TO STEAL YOUR MONEY.

[texastrixie]

Parents are already bailing out their children who ring up massive amts of credit card debt - not because they "have to," but because they feel they must. This way, the bills come to the parents. They at least have a chance to stop the kids before they charge thousands of dollars worth of stuff. There are pre-paid cards which parents can "refresh" at their own discretion (and income ability). If parents weren't already paying off junior's bills, this wouldn't be an issue. This is a warning for parents, so they don't suddenly get presented with a credit card bill for $5000!

[GroundhogBoy]

By the age of 22 (7 years ago), I was able to secure $65,000 in student loans, all of which I pay back responsibly. I did take a forbearance after not being able to procure a job immediately following college. I find it pathetic that we have suddenly deemed students too irresponsible to handle a credit card, yet allow them to sink themselves that far in student loan debt.

And just remember, student loans aren't allowed to be discarded by bankruptcy, as credit cards can be.

[GrouchyOldFart]

College students should already know that:

A - If they borrow money, they have to pay it back.

B - Using a credit card is the same as a loan.

C - There is going to be a charge for the use of that money.

E - If they are late paying that money back, there will be greater interest and penalty charges.

D - They should read and understand the contract before signing up for and using credit of any kind.

They should have learned that in high school. The fact that we are graduating high school students without the slightest clue what a budget is, let alone how to set one up and live it, is a condemnation of our public school systems all by itself.

As much as the credit card companies went out of their way to ask for this legislative tail kicking ceremony, I still grates on me to see government intrusion into private business where fraud is not involved.

Everyone had a chance to read the contract and no one put a gun to credit card holder's heads to make them use them.

[confidance government]

Precisely, its more a condemnation of the financial literacy of these students when they are leaving high school than anything else. Really, they should be paying more attention to the schools producing these unprepared individuals.

[americaforme]

Its not the reason for quelling the availabilty. The emotional strength of our young adults is up for grabs, just so the banks can add them to the slavery list early on. Emotional maturity doesn't come until the mid twentys, and the emotions are hell bent at reacting to anything. Peer pressure fits nicely into the financial escalade, thus major debt before they even start out. On the other end of the scope, financial ruin happens for seniors who aren't playing with a full deck. So many seniors are in card slavery; principaly because they have returned to childhood, shoping all night from catalogs having a grand old time. The banks dont care, and the aarp vanishes where it really counts.

[hmargret]

I completely disagree with this blog.

one, the young people can use debit cards.
two, I never got a credit card until 25 years old, and saved up for what I needed. hey, things work out!
three, don't you think that it's better to learn to develop other resources besides expensive consumer credit when young? not having credit isn't the problem, it's the American consumer lifestyle that's the problem.

Most of us can't really afford it!

[confidance government]

I agree that it is more prudent for people to limit their intake of debt to the minimum possible, but I disgree that the we need to be protected by specially created legislation to limit our choice.

But yes, if you aren't consistently paying off the balance at the end of each month you are living beyond your means and have to reduce your consumption. Also if you are going into debt for your education, you should make damn sure that you are going to recover your investment.

[violettefemme]

It's not the job nor responsibility of Colleges and Universities to "teach" students, who are already, for the most part, legal adults, about credit cards. If anything, that should come in high school, along with basic math for business and taking care of your own finances. Instead, our school system forces kindergarteners to learn "pre=algebra" and ignores the basic math needs of real life, or pays them lip service for 15 minutes in 5th grade.

Also, why the insistence that all the baggage of adulthood arrive on the same day? Just because someone can serve in the military at 18, why does that mean they also should achieve every single rite of passage at the same time?

Why not in stages, which makes a lot of sense, in terms of learning how to manage each step. Is it not already obvious the kind of damage our "too much too soon" culture has done to our youth?

[GroundhogBoy]

Yeah, people should be allowed to sign up to put their lives in danger in war zones before they can get indebted to banks. That makes tons of logical sense when you consider the costs.