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Congress recently passed a law making it harder for people under 21 to get credit cards, marking a new era for college students. People younger than 21 now need a parental co-signer or proof of steady income in order to get a credit card.
More young people are in credit card debt than ever before — 84 percent of college students have credit cards, and their average debt load is more than $3,000, according to a study by Sallie Mae. The amount of debt students carry has risen drastically since 2004. Seventy-six percent of college students say they've encountered credit card companies tabeling at their colleges, many of which offered cards in exchange for free T-shirts or slices of pizza.
The new legislation is intended to protect young consumers from the traps of credit card debt, but not everyone is convinced that making it more difficult for young people to attain credit cards is fair. Huffington Post columnist Jim Randel writes,
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 students in Oregon, however, are voicing support of the new legislation.
Are you a student? Do you have a credit card? How old were you when you got your first card? How did that work out for you? What will new regulations mean for you and your credit?
GUESTS:
- Rob Blackwell: Washington bureau chief for American Banker
- Jobetta Hedelman: Graduated from the University of Oregon in 2008
- Nessa Feddis: Vice president of the American Bankers Association
Tagged as: college · economy · youth
Photo credit: b.franchina / Flickr / Creative Commons
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While predatory practices by credit card companies may attract some young adults it is wrong to think that anyone would take on unnecessary debit. Students today must take on debit because of sky rocketing tuition. Then they keep their debit because there are no high paying jobs for new grads. To reduce debit we must reduce tuition, and not increase it by 14% while increasing attendance by 13% like Gov. Chris Gregoire proposes.
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The fact of the situation is that most adults don't have a good understanding of how credit works. We're all told to pay our bills on time, but it's not always that simple.
Businesses take advantage of our ignorance, ineffective laws, and the inexperience of our youths and the pressures of this consumer driven culture.
Personally, I have a friend who played by the rules and got credit cards when he was 20 in order to establish credit history. In the end, he owed more than $30,000 in credit card debt. He didn't even make that much in a year. He got in over his head and wasn't able to pay, using all his cash to make the payments and using the cards to live. The credit card companies didn't get their money and his credit was ruined. It was a lose-lose situation.
It's worth noting that current law requires credit counseling if you want to file for bankruptcy, including education for setting financial goals and budgeting. Wouldn't it be nice if we learned these things in the first place?
I would love to see an addition to the new law that requires adults under 21 to complete some kind of credit education before than can be issued a card.
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I agree wholeheartedly. Georgia's plan to make personal finance a major part of its K-12 curriculum is brilliant.
http://www.npr.org/templates/story/story.php?storyId=4673086
Like many of our problems, education is the best solution.
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If you refer to someone under 21 as an adult, but want to restrict their actions and capabilities more than those over 21, then they aren't really adults, are they?
A solution that does not treat young adults as children would be a new law that requires everyone "to complete some kind of credit education before they can be issued a credit card".
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opposingthumb,
It's not so much that I'm hung up on a particular age, but that I'm trying to be practical. Legally, people can't get credit cards until they are 18. Most will probably apply by the time they are 21, so this ensures that most people will get this education.
I would LOVE for everyone to get this education, but I just don't think the voters would stand for mandatory education. By having this requirement for young adults we can do some practical good in a way the is politically realistic.
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I like new rules that make it harder for youth to get credit cards. Make it difficult so kids have to save money instead of buying X-boxes and IPhones. It's the responsibility of parents and teachers to teach kids how to use money and debt responsibily.
I'm tired of young people telling me they'll default on their debt if they get in trouble. These youngsters have intent of abusing the system and driving up credit card costs for all of us.
I got my first credit card a few years after I graduated from university. I bought a PC and taught myself how to use it. That purchase eventually led to a 15-year stint in information technology. In my case the $3,000 gamble paid off, but it took forever to pay off the PC.
My rule about credit cards: I use the creditor's money and pay no interest. This means I need to keep money in checking and short-term savings to pay off the card each month.
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LOL!
What a topic! Our society has set it self up to run on plastic. Plastic has no intrinsic value when extruded and cut into thin rectangles. I dumped ALL my credit cards 30 years ago and I have yet to find a situation where I have needed one!
I have often wondered when the simple adage of not signing a contract that YOU do not understand died. The whole credit industry is a scam! Not even a lawyer or litter of the breed of specialised financial types can understand those contracts...
DUH! "Just Say No!"
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You haven't needed credit cards over the last three decades? To rent a car, or book a hotel room, etc?
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Go to war, get married, have a baby, have an abortion, play the lottery---but no credit card for you!! We don't need to stop individuals from acquiring credit cards, we need to make the credit card companies act responsibly and treat cardholders fairly. This legislation is so boring and so hypocritical. I was kicked out at 18, I was grateful to have a credit card.
Why don't we educate everyone for free, give people universal healthcare---maybe that would help stop the credit card problems. -
"we need to make the credit card companies act responsibly and treat cardholders fairly."
What exactly would you legislate, then?
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This is repressive backwards legislation, that essentially discriminates or takes away rights from a specific group. This isn't how to fix an ill and rotten society. I can't say that I know a lot about the intricacies of credit card companies and their practices, but certainly their freedoms are too great. Their freedom to have exorbitant interest rates, that only increase with your inability to pay, this helps no one. We also could improve the practices of credit reporting agencies so they have more transparency, the annual credit report was a good step, but more could be done. I realize recent legislation was passed to ease some of these problems, but it could go further. Discrimination is not the way to teach financial responsibility.
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It's shocking that this age group is willing to be discriminated against, especially in a country that is unwilling (when it could actually help save lives) to enact gun legislation. At 18, (I think) you can walk around with a loaded gun in a national park, but not be able to get a credit card? It seems ridiculous to me. Maybe I am naive and too simple.
As much as I dislike credit cards, they are a scapegoat for much deeper problems with our culture, restricting access to them, won't even be a band-aid until our culture can heal, it will accomplish little and perhaps do more harm then good.
Why stop at younger people? Why not just restrict them for all ages? Or do we actually think older people are more responsible? Younger people didn't cause our economic meltdown.
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scottmil,
I admire your passion, but while logical, your ideas aren't reasonable. It was difficult enough getting this new legislation passed. There really is no way that the majority of voters are going to restrict themselves. Freedom to make mistakes (even terrible ones) is valued more than agreement to be more responsible. Not just for the minority, but everyone.
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OregonSean,
I'm not suggesting we actually restrict anyone. I was making a point. I just don't think we should be discriminating against adults or young adults if you prefer. It is hypocritical, unintelligent and patronizing. It sets a bad example. It teaches nothing. It says we can do it, but you can't. This style of thinking is oppressive, moralistic and old-school!
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scottmil,
The evidence suggests that young adults are easily entrapped by credit cards. Their brains haven't fully developed and most don't have the life experience necessary to make good decisions when it comes to money. For that reason I don't think the new law is without value. There isn't a benefit in allowing access to credit without verifying that it can be repaid. The same kind of thing happened with the mortgage crisis, people were receiving loans and income wasn't verified. The result is this recession which affects everyone.
The epidemic problems of the credit card industry affect everyone in our society and for that reason I think we should intervene. If there is evidence to the contrary I'd be willing to reconsider.
For me, it's not a moral issue, but a practical one.
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OregonSean,
Great, then lets find out if there are some other statistically disappointing segments of our society, who we should withhold credit from. Race, sexual orientation anyone? Just kidding. And, that is the point, it isn't acceptable to target one group, even if there is some merit in the data, even if we mean to teach them a lesson, or even if we feel it is for their own good. We shouldn't get to decide this.
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scottmil,
Where do we draw the line though? We set age limits for all kinds of things: driving, drinking, voting, adult content. What makes credit cards so different?
I realize that many of these limits are arbitrarily set and not necessarily based on strong evidence. However, we know that a 30 year old's brain has more in common with a 40 year old's brain than a 20 year old's brain, in the context of development.
I'm all in favor of people having as much freedom as possible, but it reaches a point where it affects other members of society and as a democracy we have to make imperfect decisions sometimes. Unfortunately, there is no objective way of determining when someone crosses the line of becoming competent. All we can do is look at the evidence and make a judgement, usually based on the view of the majority.
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OregonSean,
I'm not trying to be difficult, but it really doesn't compute that you can freely make life altering decisions like joining the army at a certain age, but you can't have access to credit. That is just scary to me. I can't believe that supposedly liberal and progressive people support this kind of thing. Sure I hate credit card companies, I think they should have all kinds of restrictions, but this is not one of them. I am sure that credit card companies will additionally find a way to misuse, abuse and will further discriminate because of this legislation. We can't abandon all sense of reason and equity because it suits us, and because we all hate credit card companies and think they take advantage of young people. Discrimination isn't the way to fix this, don't we have enough of that already.
Majorities, highly overrated! Majorities have let all kinds of atrocities happen throughout history and they still do. Just look at gay marriage, just because in many places the majority is against equal rights for all, doesn't mean it is acceptable. This is an inherent flaw in democracy, especially when the quality of the people isn't up to snuff. -
scottmil,
You're right, minority groups are crapped on all the time, and the gay marriage issue is a great example.
I think if I could have re-written the bill I would have exchanged the part about age limits with a mandatory highschool education program. All things being equal, I think education is the best approach to making a sound and informed decision in just about any circumstance.
One of my favorite quotes is, "Democracy is the worst kind of government, other than every other kind that's been tried." I agree, majority rule is not a perfect system and it's important for people to understand that at one time or another they may be considered the minority and to keep that in mind when deciding the fate of other minorities (a reason why the United States has the constitution and why it takes a 3/4 super majority to change it).
We don't have to like the system, but if we are going to make it better we need to respect it and begin appealing to the majority for change. It may be slow coming, but history has shown us that progress is inevitable (equal rights for racial and religiou minorities, women; more recently--more rights for the gay community; the election of a racial minority to the Presidency). I know that I will continue to fight for this change and I hope we are standing side by side when it happens.
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I went through five years of college, three in expensive NYC, without any credit cards. I knew that credit card debt would be too overwhelming with everything else during school. At times, when I saw other students with better stuff, I wished I had credit cards. But, in hindsight, I was not without what I needed and some things I desired, through hard work and paying cash. I did not establish credit until I was 27. That was a little more frustrating. It did seem that it was worse to have no credit vs. bad credit. Within three years, having read books on the subject and focusing, I had a strong credit score. More importanly, I have had managable debt. I think this new bill could prove a good idea in the interest of our young people.
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I work for a local fianancial company that offers credit cards. Unlike many of our competitors, we are strict with following the guidelines set out in verifying an applican'ts information, including the ability to pay.
We provide a great deal of information to our applicants, including all fees that could be accrued. Unfortunately, many people just toss their information, don't use the card wisely, then get upset when they are charged fees.
This isn't only a problem with the credit card companies (though there are problems with those mentioned who are targeting young people) but with the education of the population as a whole. Why aren't we teaching responsible money management in school? People should understand that when they buy a pizza for $10 and are charged 15% interest they are actually paying $11.50 - and that is only if it is paid on time. Put it off for a year and that pizza could cost you $50!
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It's ironic, about 8 years ago California passed a law like this requiring card companies to place to real cost of the customer's debt on their statement. It was in black in white how much they would be paying, depending on how long they took to pay it.
The sad thing is that this law was later defeated. Businesses have no interest in having educated customers.
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Nessa said that students don't get their cards from the campus tables. Then why do credit card companies have tables?
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Number one is that you should not do business with a bank!
You should join a Credit Union and help yourself and your fellow members instead of paying obscene profits to greedy bankers.
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Good comment.
As a customer of a bank, delivering sufficient profits to stockholders takes priority over you and yours. As a member of a credit union, you are one of the key stakeholders of the entity.
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Agreed. I don't know why something so simple is hard to grasp for so many. Credit Unions serve only the interest of their members. The Banks' primary motivation is to produce profit for stock holders and any customer service that is provided along the way is just a means to that goal.
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I found myself in a situation similar to your guest and felt humiliated and guilty that I couldn't pay my bills & about filing for bankruptcy only a year after college. My lawyer walked me through the math that showed that with the relatively low balances I had, and as long as I'd been sending in minimum payments, I'd actually repaid most of my original debt. That fact made it a bit easier to live with. The interest rates were what made it impossible to pay off.
By the way, I was 25 when I started college. LOst my job my last year in school, that precipitated a fast increase in debt.
-eve
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If people under 21 can be sent to war to die for their country, then those people should have full and unrestricted rights as an adult.
Instead of punishing the responsible 18-21 year olds, why not place sufficient restrictions on the credit card companies to prevent them from taking undue advantage of ANY adult?
If managing credit and personal finance is so critical to living a successful life, then perhaps demonstration of sufficient personal finance understanding should be part of the standard minimum high-school graduation requirements?
Perhaps demonstrating command of personal finances should be a minimum requirement for being allowed to get any job while under 18?
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Interesting that you have two guests advocating for the bankers and no advocate for The People.
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We have one person advocating for banks. One who filed for bankruptcy. And one who reports on the banking industry.
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Disappointing is the word. A trained advocate could frame the discussion in a much larger framework and understand the real goals of the latest legislation. They could also bring to bear recent developments and proposed legislation that may really help consumers.
Portland deserves better than this.
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The best way to establish credit is to deposit two thousand dollars in your Credit Union account, take out a loan against it, and then make all of your payments until the loan is paid off. Then you have established yourself as credit worthy.
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Unless something happens to you and your income. Also, the main point of the credit card company's aggressive recruitment of college students is that they figure they can either rope the parents into paying to protect their kids credit rating or they can get a cut of future income of the students. They don't care about loyalty. I wish the show had a real consumer advocate on.
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"We have one person advocating for banks. One who filed for bankruptcy. And one who reports on the banking industry."
My point exactly.
You have no one advocating for consumers.
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Jobetta Hedelman is, right now.
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@ David Miller - Jobetta is just a consumer, she's not knowledgeable about the industry the way an advocate would be. She can't frame the discussion larger than her own experiences. I wish they would get someone else to do this show.
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At age 24 I easily obtained my first credit card - it was from a national retailer. I was enrolled at a community college half-time, wasn't working, and had next to no income. With-in several years, I had several cc's, obtaining them all using false income information. All the while, I maintained at least minimum payments on all debts. By the time I was 30, I had moved through all the levels of cc (platinum, platinum select, diamond rewards, and titanium), and had aquired over twelve thousand dollars of debt -- this on an income of under 20k per year. Because I maintained an excellent record of payment, and fibbed about my salary, I at one time had a combined cc maxium limit of over 60k -- fortunately, I never exploided that opportunity, and finally paid my cc debt down.
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I wanted to make a comment regarding loyalty to your first card. I'm 49 now. I got my first Visa credit card around the age of 27 with Citibank. I think I signed up for the free items program (they were newly popular at the time). They were my credit card for about the next 20 years. But what led me to switch to a local credit union was when Citibank's customer service moved to India, and if I had issues, I had to talk to someone on the phone who had an Indian accent. They also tried to sell me new services every time I called about an issue. I wasn't comfortable with someone in India having access to my private information, which led me to close that account and get a card with my credit union, who's customer service people are in the U.S.
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When you have a society obsessed with having more and more "stuff", and an economy based on the idea of endless growth, what do you expect will happen? Things will get out of control and people will do what ever they can just to "fit in".
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A lot of the defaults are like what Jobetta described. Low paying jobs or layoffs and lack of medical coverage. Credit cards are substituting for basic social safety nets and responsible worker protection laws (right now we PAY companies to ship jobs overseas). And credit card companies are doing it making money hand over fist-- at a much higher rate than it would cost us to have sensible policies regarding these issues. Obama is making the first steps to provide these. I wish they had a better discussion outlining these issues.
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Horrible discussion. No consumer advocates? Ridiculous. A beltway business reporter who must suck up to his sources to get stories and an industry spokesperson and one clueless consumer?
This show needs new staff.
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Nah, I think this staff normally does pretty well, it is just that this time they could have done a lot better than they did with finding guests.
You can't get 'em all right, you just have to shoot for percentages. Like a comedian telling jokes, some will be stinkers but some will be great.
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"Jobetta Hedelman is, right now."
She is a victim. She is not a person who specializes in consumer protection from the excesses of bankers. You have two very knowledgeable people advovcating for banks but no one with similar knowledge advocating for the opposite side, for consumers.
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Having a credit card for a limit of $1,800.00 was a priveledge for me as a senior citizen. My complaint was that the credit card company can allow you a 9.9 % rate for a cash draw and then accidently I missed my payment date by 2 days. Consequently they charged me $59.00 late fee then raised my interest rate to 24%. The late charge I understand. Double penalty to me is entrapment . I am now retired. When this happened three years ago I cut my card up and returned it. I now pay the finance charge and my payment each time a payment is made. In another 8 months it will be payed in full. The interest payed is equal to the original amount owed. I believe these companies should be held to limits on their services in regards to fees charged.
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My policy has always been to use credit responsibly. My wife and I have 1 card. If it's not in our bank account, we don't put it on the card. We pay it off every month, so we get 30 days of interest-free value. I live this way - maybe because I'm cheap - or wise. I don't like the idea of paying money to use money, so I don't. I realized its by the grace of God that I still have a job and can pay my bills. If I were to lose my job, I would change my spending habits. Our society depends too much on things we plan to pay for later. Both indivually and government - especially gov't! Credit card companies call us dead-beat customers. They don't make any money off of us.
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I recently watched the 1948 film "I Remember Mama" on TCM and I would highly recommend the early scenes for instructions on how a family ought to handle money. They worked together and saved and involved the children even at the youngest ages in their household finance decisions. When someone wanted something of good value each one would volunteer what they could give up in order to save some money and make that possible. It was delightful to see a family working together for their common good.
The great takeaway quote is something like "is good, we don't have to go to the bank", meaning they would not have to borrow money.
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It's not fair that people paying by credit card and cash receive the exactly same price. If you can get credit card points, mileage, or whatever by using credit card, why not using the card?
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I fully agree, however, that is the rule that the card networks require of the merchants. The only exception I've seen is some gas stations. Personally, I don't want to pay the retailers transaction fees every time someone uses their card. I prefer to pay cash.
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We should not forget others who are not familar with the realities of interest rates applied to debt, who are targeted with solicitations beyond reason. I think of immigrants and the elderly. There is always a promise extended with these credit offers that make it appear as if life will not be complete without what ease of life the instant $$$ will provide you. What it does provide is a weight upon ones shoulders that grows larger and heavier every day it is not addressed with whatever pennies can be applied. Interest rates are the financial death of anyone who participates.
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I am a student graduating a Oregon college this June. I have a comment on the statistic of debt by college students. I heard the guest say that there may be reasons why students are not eligible for federal aide. I am one of those students. My parents currently own rental properties that they are still paying morgages on. This means that they are not actually gaining income, if any it is little. The government considers these homes as income and therefore considers my parents as making to much for me to be eligable for financial aide as a 23 year old no less!!! So, I am currently trying to live off of the little amount my parents give me. This has been impossible so I have opened credit accounts and have had to make by with them. I do have a job set up and plan to pay...... I am just wondering, why does it make sense that because my parents are sucsessful the government won't help me as a voting "adult" with my education. I have multiple classmates who have failed out on governments money while I work hard while working part time and paying for things on my credic cards? It makes no sense!
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This is Jobetta Hedelman, posting to add something I didn't get a chance to say on the show.
I have a hard time buying the arguement young consumers, whether they're responsible or run into credit problems, build "brand loyalty" with their cards. I never paid attention to which company issued a card, and with all the banks/lenders switching ownership these days, it's hard to stick with a company even if you DO have "loyalty" to it.
I have one credit card now that I signed up for because it was connected to a non-profit that received a part of the proceeds. I used it for a hotel room on a trip and paid it off in full. The card was from WaMu, which was of course recently sold to Chase. When Chase sent me a new card, it was no longer connected to the non-profit. The ONLY reason I got that particular card was because of the non-profit, and I would not have chosen to do business with Chase.
The same problem occurred with my student loans. After I got my BA, I consolidated my loans through a private lender that locked me in at a very low interest rate and promised that when I went to grad school, I'd be able to add those loans into the program. I chose that company because I wanted that option. However, in the time between then and when I finished graduate school, the lender was either purchased by or merged with Chase (I wasn't told which). Chase changed the terms and wouldn't let me add the graduate loans in. So again, even if I did have "loyalty" to the specific lender, it didn't matter because the loans were sold without my consent. -
Comments are now closed.
I remember when my son told me he signed up for a credit card. He was a 19 or 20 and college student. He said he had no intention of using it but got a free T-shirt for signing up. I was astounded that they would extend credit to someone with no obvious way to pay it back. As it turned out, he DID end up using the credit card and eventually defaulted on the payments. Several years later he found he could not get a normal loan for a car and eventually reached a settlement with the credit card company. Supposedly they discounted what he owed to get paid in one lump sum (he gave them his whole tax refund) but that amount almost surely was more than he had ever actually charged. He would have been much better off in building credit if he hadn't been lured into getting a card too soon.