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No More Cards for Tots

Posted by: Matthew Goldstein on May 20

There’s a lot to like about the long overdue credit card reform bill. The measure will make it more difficult for banks to take advantage of consumers by jacking-up interest rates and changing terms midstream. The measure also will force companies to provide consumers with more information about the price they pay in finance charges for only making minimum payments each month.

It’s still not clear if card companies, in a bid to boost profit margins, will exact their revenge by charging higher fees to customers who regulary pay-off their bills in full. But Ron Lieber, in a piece in The New York Times today, makes a good argument why card companies probably won’t hit back at those customers too hard.

However, the biggest reason to cheer the new bill is the provision that will make it difficult for banks to offer credit cards to anyone under the age of 21. For years, credit card companies have taken advantage of the young by showering credit card deals on college age people—many of whom have no regular incomes and no sense about how to manage their money. It’s been a cynical ploy by the banking business to get young people hooked on the concept that there’s nothing wrong with running-up a mountain of consumer debt.

Going forward, the only way people under 21 will be able to get a credit card is if they get the approval of a parent, or can show they are financially independent. That’s the way it used to be and the banks never should have been allowed to do otherwise. Hopefully, limiting the flow of cards will produce a generation of young people better schooled in the art of managing their finances.

Reader Comments

Recent College Grad

May 20, 2009 11:33 PM

I believe this new law will not allow young adults to mature and be responsible with the use of credit, specially credit cards. Having the government put a moratorium on credit cards until you're 21 will simply push the mistakes students make at age 18 to age 21. I believe instead of putting limits on when one can apply for a credit card, the government should force schools to teach about how to use credit wisely. You have no idea how many students I have met that thought applying for a credit card meant that they were going to be in debt, not to mention students that made 5 or 6 payments every month (basically right after they used the card) because of fear of having to pay interest. This kind of ignorance needs to stop and the government should do something about it!

I'm a recent college grad (Class of 07) and I got my first credit card my first year in college with 1,000 dollars of credit line by simply writing my name down. By senior year I had over 5,000 dollars in line of credit which I used wisely to extend cash flow (by almost 60 days in some cases) as well as rack up rewards. I have always paid in full and never paid late. By using my credit cards wisely since college, I now have a stellar credit score and thousands of dollars in rewards! If I hadn't been able to apply for my first credit card freshman year in college, this would have not been possible!

Joyce Cousler

May 28, 2009 09:08 AM

I for one am very thrilled to endorse this new bill regarding the issuance of credit cards to the young. I also strongly endorse more financial teachings in high school. It is extremely important that kids have explicit knowledge of finances not only in the schools but from parents. We did our very best to teach our four sons the fundamentals of finances by letting them know how much income came in and how it was disbursed. Even with that knowledge we tried to instill, two still did not get it. We still strongly feel that the more they are informed the better. Some will never get it! We feel that a person should have at the least, 3yrs of steady employment before any credit is granted.

Thank you for your interest. This blog is no longer active.



BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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