The Credit Cardholders’ Bill of Rights Act of 2009 Is Here: What Does It Mean For You – And What Might It Mean for the Future?

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On Tuesday, the Senate passed the Credit Cardholders’ Bill of Rights Act of 2009, an act that will quickly be passed into law with the signature of President Obama, likely within the week. This bill has a huge number of ramifications for credit cards – for users who are late on their payments, for those who pay their bills on time, and perhaps even for the ability to use credit cards in stores.

Washington Wire summarizes the bill very succinctly:

Existing balances: Issuers cannot retroactively change the rate on an existing balance unless the account is 60 days delinquent.
Payments: A consumer payment above the minimum applies first to the balance with the highest rate.
Teaser rates: Issuers cannot raise rates for the first year after an account opened. Promotional rates must last at least six months.
Bills: Issuers must send a bill 21 days before the due date.
Over limit: Issuers cannot charge over-limit fees on credit cards unless the consumer has signed up to allow such transactions.
Minors: For consumers under 21 years old, a company must get the signature of a parent or another to take responsibility for the debt, or it must obtain proof that the under-21 consumer can repay credit.
Disclosure: Cardholders must get 45 days notice of change in terms.
Fees: Issuers cannot charge fees to pay by mail, phone, and electronic transfer or online, except for expedited service.
Gift cards: All gift cards must have at least a five-year life.

Meanwhile, The Wallet offers a few predictions for what this means:

“We’re in uncharted territory here,” says Curtis Arnold, head of CardRatings.com, a credit-card comparison site. Mr. Arnold says consumers can expect issuers to work overtime to lure high-end, high-volume clientele while adding fees and rate hikes for customers with less-than-stellar credit profiles.

The rationale is that credit-card issuers make money off interchange fees (fees merchants pay to card issuers). So customers who charge everything and pay off their balances are seen as less risky and still profitable by card issuers.

The future of rewards programs is also up in the air. Mr. Arnold advises cashing in reward and airline mile points, as their purchasing power has been on the decline in the last year or so. However, he points to new cards from brokerages like Charles Schwab and Fidelity, which offer higher cash-back rewards that lure customers to their brokerage products.

Mr. Arnold also advises those customers with existing balances to pay them off as soon as possible and consider transferring them to smaller banks and credit unions, which may be able to offer more generous rates and repayment terms. He, and others in the industry, expect interest rates on existing balances to keep climbing before the proposed legislation kicks in. (An optimistic guess would be that card issuers would have to comply nine months or a year from now.)

Something else to keep an eye on: Annual fees. The era of reward cards, or even non-reward cards, with no annual fees may be at an end. Stay tuned to notices from your card issuers and the changing fine print of your statement

So what does this mean for you?

First of all, these rules do help people avoid getting into trouble with credit cards. I applaud the change that requires minors to get parental approval or to prove they have the ability to repay before getting a card. I also like that all extra payments always go to the portion of the balance with the highest interest rate – no more shenanigans with companies applying overpayments to 0% balance transfers. Eliminating fees for different types of payment is also a plus.

But what else will change? It’s important to remember that the full ramifications of this bill won’t be seen immediately. Obviously, the credit card companies will try to keep their level of profits the same, which means that, inevitably, they’ll have to change their business in some ways. However, as Arnold noted above, they don’t want to kill the golden goose – the interchange fees that they rake in as a result of wide credit card use.

So, beyond the immediate impact for credit card users noted above, I’m going to make a few predictions about how this bill will affect things over the long term.

Interest rates will keep climbing. The days of easy low-interest credit are ending. That means the role of the credit card will begin to change as smart consumers begin to use credit cards more like charge cards – they pay off the balance in full at the end of each month.

What this might mean for you: Paying down your credit card balances as soon as possible is more important than ever! If you’re carrying a credit card balance, now is the time to start buckling down and wiping out that debt. If you aren’t carrying a debt on your cards, don’t start one – stick to spending less than you earn and keep using the credit card as an intelligent tool.

The credit card syndicates (Visa, Mastercard, etc.) will seek to raise interchange fees as a first line of attack. Credit cards work most effectively when lots of consumers have them and then expect this service from merchants. Think about it from Target’s perspective, for example – if half of their customers use credit cards to pay, they’re somewhat tied to offering that service to customers. Thus, I predict credit card companies will use that to their advantage and raise interchange fees, particularly on large retailers.

What this might mean for you: Many merchants will attempt to recoup this increase in interchange fees by passing the cost along to the consumer, so I would expect a slight bump in prices – 1% or so, spread out over many purchases and items. For most people, this will largely go unnoticed and will be seen as normal inflation.

Credit card issuers will get clever with fees, but annual fees won’t return. Most consumers have come to expect that their credit card will have no annual fees, so I don’t believe these will return in wide use. Instead, the companies will see other avenues for fees – cards that require a minimum number of uses per month, cards that have fees to enroll in particular rewards programs, and so on.

What this might mean for you: You’ll have to be more careful with credit card offers in the future. Also, when there are updates to your terms, you’ll need to read them carefully. Again, if you keep your balance paid, your credit will be good, so you can walk away from any cards that try to slip sneaky fees in on you.

I don’t believe rewards programs will go away. I would expect, though, that rewards programs will become more tied to specific “partner” retailers, like Target and Amazon, and away from more general programs like Drivers’ Edge. Why? Merchant-specific cards encourage loyalty to those merchants, and that has quite a bit of value to the merchants – those aren’t programs they will want to see go away.

What this might mean for you: Don’t be surprised if you find some of your rewards programs changing, particularly when your current card expires. For now, though, stick with what works for you.

Any thoughts or predictions on this new world of credit card rules?

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71 thoughts on “The Credit Cardholders’ Bill of Rights Act of 2009 Is Here: What Does It Mean For You – And What Might It Mean for the Future?

  1. Informative post. This is yet another piece of legislation, while important, is an indication that consumer spending growth rates will likely be more subdued going forward. As we all know, the growth in the past was in many ways masked by excessive leverage an in part due to the fact that credit card issuers where handing out credit cards at 0% APR like hot pockets.

  2. I HATE laws that apply to the 18-21 age group. They are so unfair. You are either an adult at 18 or 21 not some weird mishmash when you are between those two ages. I hated being that age. It wasn’t about not being able to drink but about things like car rentals, apartments, even some hotels don’t want to rent rooms to that age group. I don’t think *anyone* should be issued a credit card regardless of age without proof of ability to pay it back.

  3. I’m wary of the under-21 clause. I was married at 19 and had my BS by 21. I wonder what kind of proof of repayment ability they will need. The summer I was 18 (living on my own, one year of college done) I got my first credit card, and I think I made about $750 a month. I lived very well with roommates and no car. Oh, and that was 2004, lest you think this was 30 years ago or something. Would that income proof enough for a credit card without a cosigner?

  4. Interesting blog I can across it reading an article about how much bloggers make. I have a blog with a similar theme to yours. Just started mine in Dec 08. I like some of your posts like the detergent video, good stuff, creative. I like to view blogs to see the type of things on them.

    Good luck
    Rob

  5. “I applaud the change that requires minors to get parental approval or to prove they have the ability to repay before getting a card.”

    So you’ve changed your mind about that since you wrote about it last month? That’s good to hear.

    I agree with you that it’s quite likely that credit card companies will come up with new sleazy tactics to make up for the lost profits that this bill brings. Based on the summary you quote, it sounds like the bill is kind of a grab bag of ad hoc fixes – almost like Congress and the banks are facing off in a game of Calvinball. What we really need is something much more general that will give the banks the incentive to be honest with their customers in all respects. Unfortunately, I have no idea what that would be.

  6. I heard somewhere—and it sounds plausible—that the legislation includes a cap on interest rates at 30%. THIRTY PERCENT???

  7. “The credit card syndicates (Visa, Mastercard, etc.)” – one of the best terms I’ve ever seen applied to the credit card industry. They definitely operate(d) under similar methods as a syndicate.

  8. @Katherine: It looks like in the full text of the bill, it specifies that without a cosigner, an under-21 college student could get a credit limit of 20% of her annual income. So if you were making $750/month, that’s $9000/year, so you could have gotten a credit card with a limit of $1800.

  9. I’m also concerned about the under-21 clause. I was living on my own (student loans and a full-time job) at 18 – why is it fair to penalize adults by placing the burden of “proof of income” on them? I was in the same position as Katherine – low income, but through a combination of roommates and grants living comfortably. Will credit card companies take this into consideration?

    I’m very much afraid that this will lead to 18-20somethings with no credit, fresh out of high school or college and unable to rent a house or car or buy a home because they have no credit history. I know lots of 50-somethings who can’t handle credit responsibly, but many 18-year-olds who pay off their Visa bill each month. If credit card companies must ask for proof of income, they should do it for all ages.

  10. What I find the most interesting about this bill is the unintended consequences: the people they are trying to protect will be the ones who pay for it. The goal of this bill is to ‘protect’ credit card users (particularly those who carry balances) from predatory companies: prevent or limit huge interest jumps, limit foolish young people from getting them and ending up in huge debt, etc. And yet, it will be the people with the balances and poor credit rating who will see the backlash. Companies will be hesitant to give them cards because they are seen as risky, so their ability to get credit when they truly need it will be much lower. Interest rates will be higher across the board, and it will be people with balances who pay it, not those like me who pay the card off every month.

    I am OK with the limits on young people, even though I find the hazy 18-21 age period to be kind of insulting. You can join the army at 18, but you can’t be trusted with a credit card? What kind of message are we sending? I have the same argument about the 21 drinking age. Adulthood should have on legal age, and all limits ought to end at that age, whatever it may be.

  11. “Companies will be hesitant to give them cards because they are seen as risky, so their ability to get credit when they truly need it will be much lower. ”

    I think that’s pretty much the intended consequence. The point is to get people out of the mindset that they “need” credit.

  12. I tend to go along with anything that limits the use of credit by young people. However, the flip side of that is that at 18 you are old enough to vote, serve in a war, and enter into contractual agreements as an adult, etc. So it makes the idea of requiring parental consent, or additional burdens of proof to show ability to repay, for obtaining a credit card, seem a little ridiculous.

    And don’t worry too much about Visa/MC–they will make up their profits somewhere–reduced rewards, annual fees, etc.

  13. Great post, very informative. I also applaud this new bill and think it was long overdue. Even if it means that my rewards benefits decrease greatly, and even if it meant all credit cards will start charging an annual fee, I’m still all for it. Too many people have been ripped off by CC companies for too damn long. Some fees are worth the price!

    That said, I agree with many of the above posters who protest the under-21 rule. It is outrageous, and this mentality hurts one group more than any other: foster children. When kids in the system turn 18, that is IT. They don’t get any more help from the state, and most have no family to fall back on. The fact that the government curtails rights for the 18-21 crowd is a betrayal of these kids whom they are in charge of protecting!

    Trent, this is probably a dumb question. But now that the Senate and the House have both passed this bill, would it be pointless to write a letter to my Senators or Reps about my concerns? Or would it still be worthwhile? Thank you!

  14. I have yet to see a persuasive arguement as to why 18-21 year olds should not prove adequate income in order to borrow money. “Not fair” is a poor excuse because nothing in life is fair.

    Once upon a time, everyone who asked to borrow money had to prove they had the means to repay loans. EVERYONE. It’s only been recently when no one had to prove anything, this anomoly will not soon be repeated. No one is being denied a credit card unless they are unable to prove income and find a sucker to co-sign with them.

  15. These changes should take place now, not next year. Most 18-21 year olds have no idea how to handle credit and should only have it if they have a job that will allow charges to be repaid, or get the parent to sign off on it. Right now, the credit card companies just assume the parents will take care of it and then the parents are surprised when the crying child comes to them with a $3,500 credit card bill that they can’t explain. I know, I am one of those parents.

    EVERYONE, not just the 18-21 year olds, should be able to prove that they have the financial wherewithal to repay any debt that they take on.

    I don’t think the legislation included a ceiling on interest rates, although it should have. 30% is a laughably low interest rate when compared to the 700-800% interest rate charged by payday lenders. They make the mafia look like your neighborhood S&L, giving out toasters or something. I believe that payday lenders are the very scum of the earth and there is a special place in hell being prepared for these vultures.

  16. Now that 18-20 year olds will have a harder time getting credit, they will not have a credit score, or worse a bad one, a lot of companys check your credit score for hiring, FICA not high enough, no interveiw, no apartment, no insurance….
    next they need to change it so the FICA is only used for credit,

  17. Now that 18-20 year olds will have a harder time getting credit, they will not have a credit score, or worse a bad one. A lot of companys check your credit score for hiring, FICA not high enough, no interveiw, no apartment, no insurance….
    Next they need to change it so the FICA is only used for credit,
    I am not in this age group now, and when I was, that was all FICA was used for.

  18. Despite the fact that I personally oppose this legislative act because I a crazy free-market capitalist guy, I only see positives things that will come out of it.

    Let’s face it, too many people use credit to buy things they really shouldn’t. It’s sad that it takes an act of Congress to start the reverse trend.

    And yes, growth will probably stagnate in this country as a result, but in a decade or so, people will begin to buy most things and pay for them completely without wondering about the minimum monthly payments.

  19. @16

    That’s a line I hear a lot, but the reality is that credit score is not nearly as pervasive as people seem to think.

    People seem to think that a less-than-perfect credit score will keep them out of interviews, apartments, and insurance, and I’ve never experienced nor heard of that being the case. None of those things are affected until you start to get into the real bottom of the score system, which takes multiple negative reports to get to.

  20. I’m all for the limitations they are placing on 18-21 year olds. For one it’s like giving younger people training wheels to learn how to use credit before they can go whole hog. Second maybe it will encourage less reliance on both consumers and credit reporting agencies, banks, etc on credit history, and more on other indicators of financial reliability (job history, bill paying history etc). The importance of credit scores has gotten really overblown.

  21. I really think that the american consumer needs to start taking responsibility for their own actions. The government was never intended to protect us from us. If every single american would stand up, educate themselves about finances and take responsibility for their own actions we would need less government, and we would gain control of OUR hard earned money.

  22. Apparently the 18-21 year old category has hit a nerve. I completely agree, but for slightly different reasons. We are making every effort in our society to delay responsibility for as long as possible. It begins as early as toddlers when we hover at the playground, afraid that our children might get hurt. During the elementary years we can’t let our children do homework on the bus (an official rule in many places) because they might lose their homework. When are we going to allow people, of all ages, to take responsibility for their lives? Obviously this would be a different level of responsibility for different ages, but we have removed it almost completely. Perhaps if we allowed our children to get hurt on the playground or lose their homework a few times, AND SUFFER THE CONSEQUENCES, by the age of 18 they would be ready for more responsibility. Maybe even a credit card.

  23. “Thus, I predict credit card companies will use that to their advantage and raise interchange fees, particularly on large retailers.”

    Can they single out large retailers? I’m curious what happens to all the smaller stores that have reluctantly brought in credit/debit machines. I use my amex (cash back) to purchase nearly everything, and I have to take the extra step of noting which stores will and won’t take it. Do you think a lot of places will take out the machines or go to debit only? Will debit interchanges stay fairly low, or will bigger banks push visa/mc to cushion the fall?

    I think there’s always exceptions for the 18-21 year old crowd (and don’t forget the fairness with car rentals for those under 25!), and the CC companies will lean towards give vs deny for college kids (I don’t have numbers, but it has to be a HUGE cash cow for them). Having the parents sign on is actually worse in my opinion. I believe parents are more likely than a credit card company to be swayed by the argument that their kid is an adult now and can handle a CC now that they’re on their own. Most parents know their kids aren’t really ready to be out there on their own, but it doesn’t give them much pause when shoving them out the door. Gotta learn sometime right? Then the CC can authorize a higher limit and tie responsibility to the parent, without giving them visibility or control over the account. Oh boy. It’s not like there isn’t precedent, I worked for the university while in school and got tons of livid calls from parents that wanted to know their child’s grades. We’ll eagerly take tuition money from you, but we can’t tell you their grades or courseload.

  24. @Lurker Carl (#14)

    My issue with the 18-21 year old rule is that it shouldn’t be the government’s business whether lenders issue credit cards to legal adults. The lenders assume the risk. If they decide to lend to someone who can’t pay it back, they lose money.

    I completely agree with you that people don’t have a RIGHT to credit. I would have no issue with lenders requiring proof of ability to pay back credit cards for people 18-21 if it were their choice.

    So the question then is why did the government add this legislation? What is the downside of issuing credit cards to 18-21 year olds who don’t have proof of an ability to pay it back?

    I see two negatives: 1) the 18-21 year old is irresponsible and the parent has to come in and pay off the credit card, harming the parent. 2) the 18-21 is irresponsible and gets into serious debt, either going into bankruptcy or taking a long time to pay off the debt. I agree that these are bad things for the 18-21 year old and/or his family. The credit card companies obviously can’t be hurt that much since they are doing the lending.

    As I see it, the government is trying to protect people from making bad decisions that hurt only themselves (parents of the 18-21 year old can say no to helping and protect themselves).

    So is it the government’s job to protect you from yourself? I would argue no (in most cases, I’m sure you can come up with exceptions). Additionally, there will be a small number of people who are harmed by this (responsible 18-21 year olds who need credit – or more credit – that otherwise would have been able to get it, or who needed to build credit or something along those lines. There have to be some responsible exceptions that are “harmed” by the restriction).

    My next question is, who should be harmed in this situation, people who make irresponsible decisions, or people who make responsible decisions? I’d be much more open to education in high school regarding financial issues (and would actually encourage it), as opposed to a restriction such as this.

  25. As far as I know, the bill the Senate passed does not match what the House has passed. The House and Senate have to pass the same bill + the President has to sign it into law for it to take effect. Bottom line: we still don’t know what the law will be. Just a cautionary note.

    I agree with other posters that the “under 21″ provision is bad. For what it’s worth, 18 is legal age (“age of majority”) in nearly all states. I think only in Mississippi and D.C. would a 20-year-old be a “minor.”

  26. I have to say, I like the proposed changes, but having worked in the credit card industry, I can confidently say that the end result is going to make people even more unhappy. Interest rates will go up, fees that are assessed won’t be as negiotable, and getting credit will be a LOT harder.

    I’ve worked with a lot of consumers. There are people who, no matter how clearly stated a credit card’s terms are, will insist that they paid on time when they clearly didn’t. I’ve had arguements with people over how they screwed up balance transfer offers – the most common mistake is that they don’t read the offer, they write the check out to CASH (which is not a balance transfer, you have to write the check directly to your other credit card) and then deposit the cash in their bank accounts to pay their other bills. And then call up wondering why they aren’t getting 0% for the balance transfers they didn’t actually do. Trust me – I’ve had to have people fax their offers to me, so I can highlight the fine print ON the offer and fax it back and they will then argue that it’s not their responsibility to read the offer.

    NOT THEIR RESPONSIBILITY TO READ THE OFFER!

    A *huge* part of the problem with credit cards is that a lot of people assume that they have no responsibility to educate themselves on what they are doing with their money. I know a lot of people who don’t go over limit, who know that currently, the lowest balance gets paid first, etc.

    And I know consumers who seriosly blame their credit card company for “not sending the statement in time” because the statement arrives three days after the billing cycle closes, but the consumer went on vacation for three weeks the day before the statment arrived… therefore the consumer thinks he’s being mistreated if he gets a late fee. And folks? This happens all the time.

    It’s not all “big bad credit card companies always intentionally screw all consumers because they are evil”. There are a lot of people out there who take no responsibility for their own errors in judgement with money.

  27. You can’t legislate against stupidity!!!

    This is what is happening. A majority of Americans are stupid with money. It’s not the credit card company’s fault, it’s your own.

    Spending less than you earn is a simple concept.

    This bill will not only hurt those who pay-in-full each month, but also the audience the bill is targeting!! Why doesn’t Congress understand this?

  28. I see no problem with singling out 18-21 yr olds in credit card reform. Until the age of 23 (barring special circumstances) you cant even get fincial aid at the college on your own, its based on your parents income regardless of whether or not they claim you on their taxes.

  29. I am bummed because we pay off our card every month and have never been late in 25 years of marriage, but we’ll be “taxed” or “charged” for other people’s misuse of their credit cards. It looks like our penalty will be cuts to our rewards program, annual fees or higher prices at the cash register. In the end, everyone pays more.

  30. I work with a credit card processor and we deal with a lot of large and small merchants.

    Small merchants all ways get the short end of the stick when it comes to rates. The lager the merchant, the better the rate. Wal-mart pays close to .05% in interchange, most small merchants pay 1% to 4% for the same sales.

    Also, most people are not aware that merchant pay the bulk of the “rewards” given out by the credit card companies in the form of higher interchange.
    Most of the big merchants don’t see much of a ding, but the mom & pop stores can see almost a 4% interchange fee.

  31. I think ALL borrowers should be required to show proof of ability to repay the loan, Not just under 21. Especially when it is not uncommon for a credit limit to escalate pretty quickly to over 10,000. That’s a big unsecured loan.

  32. hmmm…. So if I’m reading the article correctly, Trent is saying that those who carry balances should pay them off as quickly as possible because interest rates go up. Is this prediction because credit card companies are losing some of the ways they make their money?

    This scares me. I’m one of those “charged a lot from 18-22 years of age and now I’m having to dig myself out” type of people. I’m 26 and my husband and I have been throwing money left and right at our credit cards to pay them off. While we’ve made a lot of progress in the past three years, we still have a long way to go. Unfortunately, we were both laid off late last year and have YET to find a new job. Praise the Lord we have no new credit card debt from this experience. But still. How are we supposed to quickly pay off balances?

    The only way I see this bill really helping us in the immediate future is that payments would be applied to higher interest rates first, ie. cash advances before purchases. I was only stupid enough to take out ONE cash advance but I have yet to touch that balance because the credit card company applies my payment to the purchases. Maybe I should have transferred the entire balance to a new card a long time ago while I was still able to do so…

    Oh, well. I guess this whole thing is just a learning experience, right? I don’t want to be one of those people who blames everyone else but myself for mistakes.

    When would this bill go into effect? And what’s different about it compared to the one Bush passed last year that’s supposed to take effect this summer (if I’m remembering correctly)?

  33. Quote from Rap #25: I’ve had to have people fax their offers to me, so I can highlight the fine print ON the offer and fax it back and they will then argue that it’s not their responsibility to read the offer.

    NOT THEIR RESPONSIBILITY TO READ THE OFFER! (end quote)

    I once actually heard someone (a graduate of an Ivy League college, yet) say, “Oh, if I had known the contract said THAT, I would never have signed it.”

    Go figure.

  34. @ Rap – I think you make a lot of good points there, but there are instances where it is “the big bad credit card companies intentionally screwing consumers”. However, I do not agree that we need this legislation which is only going to drive up the cost of goods for everyone. Nothing I read here is really going to be that much of an impact to the credit card companies.

    @ Trent – I don’t know how you can write “these rules do help people avoid getting into trouble with credit cards”. People didn’t get into trouble with credit cards because we didn’t have these rules, they got into trouble because they buy stuff they don’t need with money they don’t have to impress people they don’t like. These rules do nothing to get people to live within their means, this bill just gives people the illusion that the government has “stepped in to help the common man”.

    While I don’t agree with treating adults like children just because they are under 21, I really don’t see how this will be much of an impact since many young adults have some sort of job and of those who don’t many parents are willing to co-sign anyways. They co-sign for student loans, they co-sign for cars and they will no doubt co-sign for the credit card. In fact, this will give them an excuse to do so cause they will want to help little Billy get a credit score. But why is this a rule for just adults under 21? Shouldn’t everyone seeking credit be able to prove income that could pay it back?

  35. @Rap – You make some excellent points about personal responsibility. However, in all fairness, most credit card agreements are too voluminous and written in obscure legalese to be understood, let alone even read by most consumers. I’d suspect this is intentional.

  36. @kristine

    You hit the nail on the head! Those are my thoughts exactly.

    One thing I just thought of is…what if someone is OK with or has to pay for something over time? I know it’s a stupid move financially. But let’s look at someone who just had to repair their car with no emergency fund. Credit card to the rescue. But their limit is too low. Now they can’t get to work. How is that helping consumers?

    I’m just annoyed in general that adults aren’t really adults. And why 21? Just because of the alcohol law, which is another arbitrary rule?

  37. Update to my previous comment: I see that the House has now also passed the same bill the Senate passed, and the bill has been sent to the President.

    (When I first posted, I had no idea the House was on the brink of passing the same bill the Senate passed.)

  38. we are the first society in history to NOT have usuary laws since moneylenders have traditionally had HORRIBLE reputations and ethics. a mere 40 years ago most of what credit card companies do now would be considered loan sharking.

  39. I’m still waiting for a valid arguement as to why an 18-21 year old without an income should have unfettered access to credit cards. Or anyone, for that matter. FICO and everyone else already knows Junior and Sissy won’t have any realistic credit history at 21 years old, that is why most young adults must make rather large security deposits when establishing independence from their parents.

    This ‘under 21′ credit card hurdle is easy to nagivate, either get a job or find a sucker to be the co-signer. It’s just like any other loan application, you need to show proof of income or bring along someone who can.

    As for the folks who can not fix the car because they don’t have an emergency fund, they can not afford to own a car – credit card or not. That credit card bill will have to be paid in the coming months and that repair becomes more expensive as the interest accrues. The solution is to live really close to your job, utilize public transportation, walk or ride a bike.

    This isn’t rocket science, it’s common sense!

  40. @lurker carl

    Without the provision in this legislation, an 18-21 year old’s access to credit cards is not “unfettered.” The credit card companies still have to approve them. They can restrict the credit all they want.

    This provision is a restriction of freedom. If the government is going to restrict freedom, there should be a good reason for it. What I don’t see, is the good reason to do it.

  41. @Andy: How about this – when banks are allowed the “freedom” to make a mess of themselves by lending lots of money to people who lack the means to pay it back, taxpayers run the risk of having to pay to clean it all up. Is that a good enough reason?

  42. The under 21 thing is kind of dodgy – some sort of legislation should be around to protect that age group, but this restriction is a poor substitute for education. That said, I didn’t get my first credit card until I was 21, and wasn’t particularily hurt by it.

    I saw an NYTimes article yesterday, I think, that suggested companies would try to make more money off of consistent payers to make up for money they’re losing off of non-payers (which was only notional in the first place).

    Basically, any way you look at it, credit’s GOT to be harder to get when you get to a situation where these companies actually write off loans that will never be repaid. A lot of the profits of the credit card industry were imaginary in the first place.

  43. Prodgod, Kris – I don’t entirely disagree with your points either. Yes, there are people who get screwed and companies with shady practices, and yes, there are a LOT of fine print. My arguement isnt’ that there aren’t bad practices…but that a)there aren’t as many intentional attempts to screw over consumers as you might think and b) the information is available to the consumer to see *if they would bother to look and ask*.

    When I look thru consumer sites where there’s endless complaints about overlimit fees and late fees… I see a lot people complaining that they *weren’t late* or *weren’t overlimit* but that they were a day late or a few dollars over limit and that its somehow unfair that fees are accessed. A day late is *late*. A dollar over is *over* and it is the consumer’s job to know when their bill needs to be paid and what their limit is.

    I seriously had people frothing angry that they didn’t get a special call the day before their bill was due to gently remind them that they had a payment due. People screaming mad that they weren’t getting by the hour updates on their limits. I look at these proposed rules… and honestly? It’s not going to change how some people refuse to acknowledge that they aren’t special snowflakes.

    The credit card industry needs to acknowledge some bad practices (I personally hate universal default) but consumers need to understand that personal responsibility comes into play as well. Using a credit card is a responsibility.

  44. I absolutely agree–pay off your card(s) now so that you’re prepared when these changes hit. There’s no telling who the credit card companies are going to tap into to subsidize their losses from these changes.

  45. When I applied for my student loans I had to take a “test” basically it was 5 or 6 pages of information I read thru and than answered 4 questions at the bottom of each page on what I had read. This was to ensure that I understood what I was getting into with my loans, why can’t credit cards do the same thing??
    I hate that as an 18-21 year old I am being punished because of the mistakes of formers. I have had several credit cards for 3 years now and ALWAYS pay them in full EVERY month. I use them because I hate carrying cash, love knowing if my cards are stolen I’m covered and love getting a free cruise with my reward points!! However I understand their reasoning, I just wish they would regulate EVERYONES ability to pay back, with a simple information given and require answers like student loans do.
    I also think that parents should be held responsible. I knew that using credit cards and not paying them back in full was never an option. My parents taught me that credit cards are great tools if you use them right. If my mom ever found out I had a balance on a credit card she would kill me!! And she would not even be paying the bill.

  46. I’ll be goddamned if I ever pay an annual fee to use a credit card. I will go without credit before that happens. I’m now very glad I don’t carry a balance month to month.

  47. @Johanna (#44)

    I’m not a financial expert, but my hunch is that credit card lending is way down on the list for causes of the financial mess/bailout.

    Again, I am speculating, but my hunch is that credit card companies/banks MAKE a lot of money off lending to 18-21 year olds that they know are in college/don’t have jobs to pay it back (most likely because parents step in and pay the bill). Why else would they throw credit card offers at them?

    I don’t buy the argument that giving credit cards to 18-21 year olds without a cosigner and without proof of ability to pay it back is going to run so much risk as potentially needing a taxpayer bailout – especially when it is such a profitable segment (my assumption) for the companies (hence lower risk). That seems like a pretty big stretch.

    Now if someone argued that the credit card companies are preying on 18-21 year olds ignorant of financial management and taking advantage of their parents’ willingness to bail them out, I would completely agree. That is essentially what they are doing.

    But isn’t there a better way to combat this problem (i.e. education or something along those lines)?

  48. Andy: I never said that student credit cards were the cause of the current financial mess. What I said was that they *could* cause a mess. Yes, student credit cards are (most likely) profitable for the banks now. Subprime mortgages made money for the banks too…right up until they didn’t.

    But I’m not an expert either, so this is all speculation on my part. My point, though, is that the financial sector has proven pretty convincingly that it can’t even be trusted not to act in its own best interests, let alone anyone else’s. And that, I think, is reason enough not to set “freedom for banks to do whatever the heck they want” as the default position.

  49. I went to college in my late 20s and early 30s, and I was amazed to discover that there were credit card application forms IN THE CLASSROOMS! I’m not kidding. That’s so wrong on so many levels.

  50. I’ll add another comment: credit card companies engage in usury. Thirty percent interest? Please. That’s legalized loansharking, plain and simple. If you have to pass a bill, at least cap the interest rate at ten percent.

  51. It would seem odd to me if an 18-year-old, who can vote and enlist in the armed services, had to get parental approval to hold a credit card. Maybe I’m reading it wrong.

  52. I got my first credit card before I left high school at age 17 (yep, read that right, 17, from Mervyn’s back in the ’80′s) without a parental cosigner.

    Still wondering exactly how that happened, myself. But the fact is, I had a part time job, a checking account, and could pay for it on my own. And did.

    Shortly after that, I got a Visa at age 18 when I applied for a secured card sorta/kinda on my own. (I have to say sorta/kinda because the bank didn’t want to give it to me even after I made the deposit. The only reason they did was because my mom marched in there and threatened to pull all her accounts if they didn’t give me the card….she didn’t co-sign, she just mentioned that to the manager and lo and behold….the card came in the mail.) I scraped together $1k, got a credit line of $500. The bank really didn’t have any risk in that case, since they could just go take out their money from the deposit if I didn’t pay up.

    It became unsecured after a year or two and I never looked back. Haven’t had a problem getting credit ever since.

    I’m sure secured cards are still around, even though it’s been decades since I had one. That might be one way for younger people to get a card if this legislation, or subsequent legislation, doesn’t get rid of it.

  53. The problem with the bill is that there is no cap on interest rates. Credit card companies are loan sharking, borrowing at 1/2 percent and lending out with huge interest. This is the problem folks, your government has abandoned you. You are being scammed and the usury is pathetic. This government has lost all legitimacy. Not only did they allow the toxic loans by allowing Basel 2 off balance sheet banking, but they then stole from the treasury of the United States and are allowing the banks to steal from credit card holders. I say don’t pay credit cards. Walk away from the debt if you are able to do so without serious unintended consequences. You can seek advice from real financial advisors but if you have no way out just protest these banks and this government by walking away.

  54. @Johanna (#50)

    Ok, I can buy that. I think on this particular topic, it’s difficult for me to see giving credit cards to 18-21 year olds as ballooning into a problem serious enough for the government to get involved, but I agree that they have proven they can act recklessly and may need restraint.

    I still think this particular provision is kind of window dressing that hurts more than it helps, but in principal I can agree that yours is a valid argument for it.

  55. For those opposed to the 18-21 stipulation, What you all are missing is that it’s not that the 18-21 can’t be trusted but that they are more likely to misjudge. They are new to being in the “real world” and are easy prey for shady companies. In any case, relying on a credit card at any age is a poor decision. So many financial difficulties result from spending more money than you have. And just being a student and having a student loan gives you more credit than you may think. Live within your current means, it’s simpler than you think.

  56. When you send in your payment 10 days in advance, and the card holder receives the payment but doesn’t choose to credit it to your account until after it is due, how is the user responsible for that? And yes, they do do this. They also have the charming habit of lowering your credit limit without notice to below what they have permitted you to charge. Again, how is the user responsible for this?

    Yes, “Syndicate” is the perfect word. Universal default? You miss a payment on one account and all of them jump to 30%? How is this justified? Not in any reasonable world!

    The legalese is indeed on purpose, and it does make it very difficult, if not impossible, for the majority of users to understand. We can’t all afford law school to understand these contracts.

    Sorry. This is an industry that is out of control, and has acted so recklessly that they deserve the restraint.

  57. If 18-21 year olds can’t be trusted with a credit card because they might get in financial trouble, how can they be trusted to vote for politicians who can run up trillions of dollars of debt?

    It’s ironic that President Obama, who relied so heavily on the youth vote, has such a dim view of young people’s intelligence. But I guess he would know.

    Trent mentions a general price rise of 1% as if it’s no big deal, but it is a 1% tax on all consumers to “protect and help” a relatively small percentage of consumers who can’t or won’t help themselves. Add it to the 1-2% state and local sales tax increases we will likely face in the next year or two, plus the REAL normal inflation, plus whatever extraordinary inflation we get from the extraordinary spending now going on, and pretty soon it’s going to add up to real money.

  58. When I look thru consumer sites where there’s endless complaints about overlimit fees and late fees…

    In the UK there was a crack down on these fees. Civil law is not allowed ‘punitive’ fees, they are only allowed to collect damages and cost. There is no way that they can claim that sending you a letter and wacking on some interest payments ‘costs’ £30 or whatever each fee is. Thus people have been able to claim back these fees.

  59. Surprising that these sorts of seemingly basic regulations are just now being enacted. One thing I wonder about is the effectiveness of the ban on alternate payment fees (phone, internet, etc.) if the companies are still allowed to charge to “expedite” the transaction. In the past I’ve had to make the choice between paying a $19.99 fee to make a payment by phone a few days before a payment was due or a $29.99 late fee (I certainly don’t allow this to happen now and don’t carry a balance on credit cards). It’s blatantly obvious to me that credits to accounts are artificially delayed to the advantage of the lender (debits appear instantaneously, credits take a few days). This is terribly convenient when you are charging a fee on an average balance.

    At least now that electronic payment sent two days before the due date that is held and applied one day late doesn’t result in a rate hike.

  60. @ Sarah #60. Stereotyping 18-21 year olds because they are “more likely to misjudge” is a form of age discrimination. There are just as many 30 year olds and 40 year olds who “misjudge”. By the way, saying that they are more likely to misjudge, is the same thing as saying you can’t trust them. What people like you who want to baby these adults are missing is the more that we baby them, the LESS responsible they become. How long until we just make the age of majority 21? Then everyone will be on some blog saying 21-24 year olds are too new to the “real world” and we need special laws for them.

    At 18 a child is an adult, its the job of a parent to make sure they’re ready. Its not the governments job to pass a bunch of special laws to “protect” all these young adults because a few parents didn’t get their kids ready to be adults.

    I 1000% agree with your statement “Live within your current means, it’s simpler than you think.”

  61. Thanks, this is the most comprehensive piece I’ve seen on the new legislation. I hope you’re right in predicting that annual fees are not so likely to become pervasive. I agree that reward programs will be scaled back; that seems unavoidable with the loss of revenue. But the excesses had to be corrected, so it’s a necessary price to pay.

  62. It astounds me that “freloaders” who pay off their cards every month so they can get rewards are whining and pointing fingers that they may not get their free stuff anymore b/c the actualy targeted users and customers who bring tons of cash into the company are “causing” problems. I have no problem with the “freeloaders” getting their rewards cut. I know that it is free money for those who pay off their cards monthly, but those freeloaders don’t bring in much to card issuers, yet they cost them a lot of $$$. It would be a great way for cc companies to cut costs.

    Honestly, people who charge their cards to the max, go over the limit, etc. are the bread and butter of the card industry. The so called freeloading “good” customers bring little to the card industry.

  63. Hey Trent, if you had any balls you would let me post here. I appreciate the emails, but free speech is what it is all about. You are afraid because you are afraid of ideas and of people who think out of your little narrow box. See ya!!!

  64. Please delete the last post. I didn’t see that you finally allowed my previous post. Sorry. Gary

  65. O.K.Heres a new take on the subject..I didnt like the word ‘variable’interst rates on my CC so I got a card with a ‘fixed rate ‘.Which means what it says. In a few months my interest rate will go up 11%. I have excellent credit and always pay on time.
    There used to be a law against something called ‘Bait and switch’which means advertising one price for something and when you check it out they pull you into a higher priced product..This is what the credit card companies have done.
    Called the CC co and was told they no longer offer fixed rate fees.I told her that our original contract was created and agreed on under this type of agreement..Told her my home mortg
    age was on a fixed rate and they havent changed..She was arrogant and said I could always cancel if I wanted.
    The government is all about big business and protecting them, first and foremost..They just want us around to pay the bills.
    Im only keeping the card in case of a big emergency(car repairs etc)I pay it off every month otherwise.

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