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Yesterday, the Senate passed the new credit card legislation with the intent to increase consumer rights and protection. It’s no big secret that I’m not a fan of credit cards. In fact, not using them makes me immune to a large part of this crap. Most of the changes seem to be well-intentioned, but a couple of the issues brought up boggle my mind.
Mostly Positive Changes
- Credit Card companies will have to wait until the consumer is 60 days late to increase interest because of default. In addition, if consumers make timely payment over a 6 month period, any default rates should be returned back to normal.
- Credit Card companies now must give 45 days notice of any major changes to card policy. Most likely this would be an interest rate hike or rewards program change.
- Credit Card companies must send out bills at least 21 days in advance.
- No more universal defaults. Companies can’t raise rates just because you defaulted on a different card.
- Payment should be applied to highest interest debt, if multiple debts exist within one card. Previously applied to lowest interest in most cases.
- Payment should be accepted as on time if paid before 5 p.m. on the due date. Prevents sneaky practice of having payments due early in morning to increase default of those who wait.
- No standard increases during the first year and promotional rates must last for a minimum of 6 months.
- No extra fees can be charged for taking payments online or over the phone.
Restrictions On Consumers Under 21
This new legislation restricts the ability for anyone under 21 to obtain a credit card.
- Most will require a co-signer, which will usually be a parent.
- In cases where someone has “sufficient” income, they can apply to have a exemption made.
Like I said earlier, I hate credit cards as much as the next guy, but this is just retarded. Either you are a legal adult at 18 or you are not. If you are considered old enough to fight and die for this country, you should be considered old enough to not have to jump through a bunch of hoops to get a credit card.
If you don’t think 18 is mature enough to obtain a credit card or even to consumer alcohol then we should be raising the legal adult age to 21, not placing a bunch of government restrictions, exemptions, and regulations. In addition, it appears card holders will need co-signer permission before increasing credit limit and making other changes. Mommy, Daddy, please let me get a credit card… please!
Wait… Making Minimum Payments Is Bad?
There’s also literature in the bill that will force the credit card companies to provide statistics concerning how long it will take and how much total interest will be paid if only the minimum payments are made. In case they are busy whining about the credit card reform, I’ve written my own warning that they can feel free to use:
Dear valued customer, making the minimum payments on your credit cards is dumb. No amount of government regulation will save you. We figured this game out a long time ago. If you continue, you will die poor, but only after years of non-stop payments. Have a great day!
Seriously, though. I can’t decide whether I dislike huge, greedy industries or tedious government regulations more. Lately, I haven’t been able to tell much difference between the two.
What is your opinion on the matter? Do you think these changes are generally positive or ridiculous? Are we blurring the lines of personal responsibility or protecting innocent consumers? Join in on the discussion by commenting below!
Excellent warning! I’ve been arguing for something like that for high-cost mutual funds for a while now. 🙂
And I can’t agree more: the line of reasoning regarding age here is pretty messed up. :-/
ObliviousInvestor’s last blog post..The downside to passive investing.
Haha, I’ll adjust a couple words and sell you the rights ;-)!
Great summary, I tip’d it. I heard about this story yesterday, too. Crazy. Interesting to think about the idea of needing a “permit” to get a credit card vis a vis a gun. I just don’t get the whole having guns at school thing in the U.S., permit or no.
MoneyEnergy’s last blog post..The Real Costs of Graduate School
Thanks for the tip’d! Your permit idea does bring up some interesting talking points.
Like most legislation, I really really really think this is going to have unintended affects that congress either doesn’t care about OR can’t figure out.
We are in a credit crunch – not sure anyone can against that – Well I know the answer, we will make the credit card companies tinker their business model, that won’t affect the flow of credit, come on, Seriously!?
Some argue, that because MC, Visa, and AMEX make so much on the credit card transaction they are likely not to limit credit. However, isn’t it easier just to limit credit, and then raise the % they take from small businesses? Or alternatively, raise the fees they take from debit cards (which is currently lower than CCs)?
This is one of those pieces of legislation that will have massive affects no one is talking about in the media.
My Journey’s last blog post..My Journey’s Financial Update 5/29/2009
I even forgot to talk about how allowing vendors to give discounts for people who pay with cash/debit was not even brought up for a vote. What’s so wrong with that picture? If people want the convenience of credit cards they should have to pay even more than they already do, imo.
Vendors are already allowed to give discounts for cash. (Not sure about debit cards.) That’s the only way that they’re allowed to encourage people to not use Visa/Mastercard. It’s a stipulation of their merchant account agreement.
mbhunter’s last blog post..Personal finance will not crawl away and die
Good lord. You have to be 21 to get a card without co-signing? Where does someone apply for the exemption – to the card issuers or to the government?
I complete agree about age 18. If you can die for your country, you should be able to apply for a credit card.
I’m curious about the 5 PM time … is that 5 PM of the corporate office, or 5 PM of the location that physically receives the payments? If the company is a Delaware corporation and payments are processed on the west coast, there’s a 3 hour time difference.
In an interesting piece of pork, this bill would also allow loaded guns in national parks. You can debate the merits of whether this should be allowable, but it obviously doesn’t belong in this bill. It could end up killing the bill in the House (since House and Senate must pass indentical bills)
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I have no idea about the 5 p.m. I’m assuming it’s local time based on where they accept your payment, but I haven’t read the specific details with regard to that.
I actually saw that bit about the loaded gun in a park thing too. Once again, I didn’t research it thoroughly enough to comment intelligently, however I do agree that it belongs nowhere near this bill. Funny how these things work.
I have to disagree with you about the restriction on minors being a bad thing. Yes, you are a legal adult, but unless you integrate & standardize financial literacy in schools across America ~ most 18 year olds are not ready for a credit card. This one was not!
I’d like to see them take it a step further and get the credit card vendors off college campus! I can only imagine how I ruined my FICO back then applying for credit cards simply because I wanted the phone card or the T-Shirt.
By the end of my freshman year I was a few thousand dollars in Credit Card debt! Thankfully, I managed to get it paid off before graduation but I wouldn’t want anyone to have to go through that when it can be avoided.
I realize now every application dings your score, and it is probably common knowledge amoung most here, but we can’t take for granted that every 18 year old knows that and that their parents know and/or are teaching them.
Kita
Kita, I actually completely agree with you. I think the far majority of 18 year olds in our culture aren’t educated or informed enough on basic finances to handle a credit card. I have a similar story to yours in fact.
My biggest problem is the government regulation, itself. We should consider either raising the legal age to 21 or start treating 18 year olds like adults. I’m all for getting standard financial education as a requirement in all high schools. Seems like a far better way to start to handle the problem!
Moving the age up won’t really help. People who choose not to be informed about their financial health will screw themselves up whether they are 18, 21, or even 40.
In college I signed up for about 5 credit cards, 2 of which were actually used and the others for T-shirts and other junk. I did miss a payment here or there and end up getting dinged but that was part of the learning experience. In the end I have benefited greatly from those apps. Having those 4 years of credit history greatly improved my credit score out of college. I was able to open $25K in new lines of credit in my recent app-o-rama with $13K being at 0% APY which is sitting in my savings account earning me interest. Not bad at 23.
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Kita,
i would have to partially disagree with you. I believe you are correct when you say “most 18 year olds are not ready for a credit card.” But what about the ones who are. I am 19 years old and building my credit is quite helpfull at this stage. once i graduate from college i will have a great credit history and be able to move out with ease. im not in any debt but i have a $1,500 credit limit and im doing fine. so should tylenol be banned because people misuse it?
Now because this legislation it is very difficult for me to get for example an auto loan.
That is my view point on this matter.
I wouldn’t have had so much credit card debt because I would never have asked my parents to co sign for a credit card. However I do believe that there are parents who would co sign and not teach their children about the downsides to credit cards because they are probably living off of them themselves.
I’m in the same boat. This law would have probably kept me out of some of my credit card debt. Even if that’s the case, as I’ve stated it’s hard to say this is governments role in all of this.
Kita & Baker,
I think this is a political ideology question. I don’t blame the gov’t for the lack of financial education, as such, banning them from a private campus seems like wayyyyyyyyyyyyyyyyyyyy too much intrusion into private life. Just like I believe in the right for the Boy Scouts to choose who they want in their group, or The Masters’ right not to allow women to play at Agusta, private campuses should be allowed to have whomever they want on their proprety. This argument holds less water with state campuses.
My Journey’s last blog post..My Journey’s Financial Update 5/29/2009
I didn’t mean to imply I think they should be banned by the government from college campuses. I think that should be up to the college, however I wish more COLLEGES would ban them. It’s not the government’s job, although I think it would be a good thing.
Personally I think anytime the Government tries to fix something, the unintended consequences that result, are usually worse than the original problem itself.
I do not agree with the having to be 21 to get a credit card without a co-signer. What I would like to see instead is a warning that must be read and signed during the application process. Personal responsibility needs to be learned and right out of high school is the best time to learn. Soon they will be saying 21 is too young to make those decisions.
Just like a parent that tries to protect their children from ALL of the hurt in the world by keeping them from doing anything, causes more problems than it avoids, this is the same thing. Sometimes experience is the best teacher, as long as the person learnes from that experience.
As far as education in public schools, I actually wrote a blog about that today. In my opinion it depends on what that education includes, and who’s opinion is being taught. I do think education is the best way to prepare an 18 year old for the real world, but I also believe that the parents need to be more responsible than the school system in teaching their children. Parents can become complacent when the school starts teaching their kids anything.
Great Blog Baker!
Enemy of Debt’s last blog post..Your Children Will Handle Money, The Way You Handle Money
Including the warning is a great idea. I would much rather have that than this government regulation, as is.
I also agree with your points on education in general. It’s a very hard process to decide how to best tackle it, but I think we sort of took the easy way out. The easy way now might not lead us down the right path.
Seems like we were thinking along the same lines today….
What’s got me scratching my head is that an 18 year old can still get a car loan, a mortgage if he can find one, and, of course, a large student loan. But he can’t rack up miles by using plastic to buy his textbooks. Sorry kid, that’s for adults only.
Frank Curmudgeon’s last blog post..Credit Cards and Our Nation of Children
Yeah. Ban ARM’s for people under 25, next? Who knows.
I think you’ll always run into problems with regulations & standardizations with government.
How much regulation is too much?
What is the “magic” number where you are suddenly an adult?
Are there other factors that can be implemented that does not alieniate any specific demographic? For example…you need get a permit / license before you can drive. What about some sort of course you have to take before you can be granted a credit card?
Basic stuff like: FICO scores & APRs
I’m just brainstorming so I haven’t actually thought out all the ramifications of something like this. I do applaud the government for trying to do something about the abusive credit practices though.
Kita
These are all great ideas, in my opinion. You are also right about the age always being a problem. I just wish they would pick one and stick to it. We have to have a legal adult age. But we need 1. Not 4 or 5 different depending on the industry.
The headline is just too funny! Great post and love the warning label. The question is, will it be affixed to every piece of plastic like cigarettes. My fave of the government labels is that of ‘Smoking cigarettes will kill you’. You can thank the Canucks for that one…very solid.
Thanks, eh!
I am so right there with you, and I’m glad I’m not the only one who saw this and went “Whaaaaat?” (I wrote about it on my own blog today, as well.)
Basically, I don’t think it’s the age that’s the problem, it’s the lack of education. And this regulation won’t educate anyone, it will just make things difficult. When I got into credit card debt, it wasn’t because I was 20 (and not 21!), it was because of my situation – I was going to a school that was too expensive for me, and I was going into credit card debt to pay for my school projects and groceries. The fix for that would not have been to prevent me from getting a card, or to bring my mother into it (she knew full well that I had a credit card, and knew that I got it to build a credit history), but education in high school that would have prepared me to know whether a particular college was too expensive for me.
I definitely see the problem they’re trying to solve with this, but I don’t think regulation is the answer. I think individual colleges (and parents) need to handle this. My college banned credit card companies from campus, and it worked wonders. I hope other schools do the same. But I hope that they’re given the freedom to chose that, instead of credit card companies just giving up on college campuses because most students aren’t allowed to get credit cards. That’s all too “nanny state” for me.
Stephanie PTY’s last blog post..Credit Card Reform Treats College Students Like Babies?
Stephanie, again I completely agree. It seems a lot fo us are on the same page. I thought you wrote about this very well not only in this short comment, but in your post and round-up as well.
As a member of the United States Military, it always surprises me the types of responsibilities they will give me with the limitation I have as a citizen. I’m only 20 years old but for most things I am too young. My insurance is higher because I am under 25, I can’t drink alcohol because I am under 21, I can’t carry a hand gun because I am under 21 (Funny thing is that I am a 240-B gunner with the Army. That would a be a 7.62mm automatic machine gun. Tears things up!!). Now because of this law I would have to prove my income is good enough for credit or have my parents co-sign(even though they can’t) just to get a credit card. Yet another thing that prevents the younger generation from building credit. I recently tried to open account with Ally Bank, a savings and money market account. I have a avg credit score of 690(I have a car loan and havn’t had credit that long so it’s not the best) and I was denied because my credit was too low. How am I suppose to get a high-yield interest account? So many limits on me but yet according to law I am a legal adult. I definetly don’t feel like it! Thank you!
First, thank you for serving. My brother is overseas right now, getting ready to head to Afghanistan.
Second, thanks for taking the time to comment on this issue. It’s awesome to be able to get feedback from your side of the fence. All the ironies you’ve outlined above are just silly. I hope they can create ways for you guys to have the freedom to make mistakes / have success on your own terms. Thanks!
In Texas you must be at least 21 years of age (18 years of age if you qualify as a honorably discharged veteran or active member of the United States armed forces including a member or veteran of the reserves or national guard) to have a CHL. I don’t know where you live but in my state you have the right to carry a handgun if you are in the military.
Secondly, Im sure that being in the military has taught you many lesson under the authority in training of your higher ups in rank, its the older generation’s job to teach the younger one’s about money and wise financial decisions. Just because you are 18 doesn’t mean you are completely ready to handle a credit card with out have some sort of training on the “do’s” and “don’ts” on how to use it, the majority of the 18 to 21 age group need to be taught proper financial decision making skills before actually being given the freedom to choose to have it on their own. I speak from experiance most people do get into over $5,000 in debt due to not being informed about how to use it. It does more harm than good. Its a learning process just like you have things you learn, and ranks you earn in the military.
@Bob – The Ally declined app is something very interesting to me. Why a bank would decline a deposit–particularly a bank owned by GMAC which is a less than financially strong bank–that would strengthen its balance sheet is well beyond my understanding. Perhaps they are trying to offer a type of elitist program where only high credit scores are able to deposit and borrow at the institution…however I see no loan products on their website. Strange as hell.
You have my sympathies with your limited rights and unlimited duties, but someday, maybe we’ll see some legislation that gives servicemen and women exceptions to some of these ridiculous laws.
Are they still trying to hock annuities and cash value life insurance on the base? I remember a friend of mine was in the Navy and they were selling 30 year annuities that had crazy high front end commissions (talking 20% plus). Buyer beware on the base.
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I’ve heard very similar stories of people trying to take advantage of servicemen and women on the bases. Makes me sick.
Very good post! As I was reading, I found myself thinking, “what about this point? ” …and then you brought it up…and again, “what about this?” and you brought it up moments later. Very thorough and thought out. It’s a hard balance to walk. When people open credit cards, it’s not like anyone is holding a gun to their head making them go into debt. They are chosing to borrow and there are always consequences to that…But I do admit as well that MOST credit card companies are scummy and have an agenda and aren’t looking out for my (or anyone else’s) best interest. So…I think it’s a good tension to have…what role do we as consumers play and what role does the government play in regulating this?
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Haha, it looks like we think along the same lines. I think credit cards have their place, but as you pointed out, recently, they’ve been more interested in shady tactics than in just charging for what they do up front. Transparency is one of the good things to come out of this bill.
This is a way for Government to ensure they will sign up to catch bullets with their bodies.
Child Support ends at 18 if a parent wants to teach them great credit and have them start building a life for themselves then why should they have to cosign for them as well. They don’t need a cosigner after 18 to get married, have a baby, go into the military. It is upside down we let them do things they should not be able to do until later and restrain them from things that move their lives forward. I have a 19 year old son got married , could not rent a car, a hotel room and now can not get a credit card without his “mommy” give me a break he is married! What is it going to take for congress to realize either they are kids until they are 21 or they are adults. Right now Gov’t has it both ways we as tax payers are never permitted this simple luxury. Insurance rates for driving don’t drop until they are 25 maybe they are children until they are 25 because if you can’t afford to drive a car and carry the insurance in your own name how do you move your life forward on your own. These are more the questions that we the real over 25 adults need to be asking our gov’t.
The only choice an 18 year old child with a high school diploma has if his parent is poor is to go into the military/ hardly seems like a choice. If the gov’t really wants to offer the youth of america choices then let them co sign their own college loans , their own credit cards and make driving insurance more affordable so that they can actually get back and forth to a job. Otherwise call them kids and make them kids until they are 21 or 25 .
First off, I am 20, both parents dead by age 19. Its the older generation’s job to teach the younger one’s about money and wise financial decisions. Just because you are 18 doesn’t mean you are completely ready to handle a credit card with out have some sort of training on the “do’s” and “don’ts” on how to use it, the majority of the 18 to 21 age group need to be taught proper financial decision making skills before actually being given the freedom to choose to have it on their own. I speak from experiance most people do get into over $5,000 in debt due to not being informed about how to use it. It does more harm than good. Are you not aware that insurance rates go high once again, when you turn 70. Saying you arent an adult at age 24 is like saying you arent an adult at age 71, people that age are on social security, its expensive for them too, its a high risk age for accidents. You can get insurance in your own name and you just have to do insurance shopping in order to get the best rates. You can get a hotel room at age 18, I’ve done it before, its not that difficult.
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I was in the military at 21. Had already bought a car, had several credit card debts all of which my parents were on the hook for, and was as clueless to finances as I could be. I did not receive ANY financial advice from either my parents or school. I was legally an adult, could die for my country, could only just barely legally drink, but was still not able to rent a vehicle (still under 25) to get from point A to point B. I barely knew how to balance a checkbook let alone how to be responsible with credit cards. I’m not sure what the right answer is to helping our youth or even young adults to become more financially aware but at least they are sort of thinking about it.
The government is not the answer and regulation will only be sidestepped with enough money thrown at the problem. Seriously…how many smokers look at the surgeons general warning on the pack of cigarettes they buy? I think the answer is more in the education of finance and money. And it would be in providing that education at an early age from both the school system AND parents.
But, at least in some way, this is a futile attempt to inform people on the dangers of minimum payments so it is a step in the right direction.
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I don’t believe it is the government’s job to save people from their own stupidity. (Did I miss that in the bill of rights somewhere?) And the cosigning thing is beyond ridiculous. Like everyone has said before and since, either it’s 18 or 21, but for the love of little green apples, pick one already!!
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I’m all for people being able to make their own decisions, and I’m also all for businesses being able to present options for them to do so.
Credit card companies enable people to do many things. Some people choose to overspend, and they get in debt, rack up fees, pay interest. Others (like myself) choose to pay my card off in full, and in doing so I take full advantage of the free float and the rewards. The CC company can do this for me because they’re making scads of money off of the other folks.
If you prevent people from losing, you also prevent people from winning.
mbhunter’s last blog post..Personal finance will not crawl away and die
Your last line says it all….
I like some parts of the legislation, mostly the parts that force transparency and standardization, such as sending bills out 21 days early, accepting payments until 5pm on due date, standards for changing agreements, etc. Those aren’t unreasonable changes. I don’t agree with the age based requirement though. 18 year olds are legally able to enter into a contract, vote, and join the military. They should also be able to get a credit card without a co-signer.
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This is a good example of why I feel education is important before receiving a credit card:
http://www.daveramsey.com/etc/cms/Testimonial_by_Warren_12340.htmlc
I agree that this is completely ridiculous. I wanted to get a credit card to up my credit score so I could leave my lets say “troublesome” home. Can’t rent an apartment with out good credit. Can’t get a decent loan without good credit. This was literally right before my birthday so it sucked for me. I have a decent job and have a savings/checking account. Graduated high school with honors and now I can’t move out. It’s not my fault almost all american teens don’t know how to balance a check book or don’t know what APR is so they fall into debt. So why punish the ones that know what they’re doing? its unfair.
By the way, my high school taught us some important concepts about credit and I had a economics teacher who had bad experiences as a teen with a credit card so I know what not to do. This class is mandatory so you can graduate.
People just need to take responsibility for themselves. I used to work in bank marketing, and I combed through this “Act.” College students can simply get multiple credit cards with lower credit limits and still rack up thousands of dollars of debt. And if a student working part time is good at paying back $10/month minimum payment, banks will easily raise that credit limit from $200 to $2000 in a few months. Your only “protection” from creditors is the person in the mirror.
Thank you, all Soldiers, for taking bullets for me. No need to take bullets from the banks also!
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Wow i found this webpage cause i am a 18 yo that was needin a credit card and couldnt get one this really angers me because i have sufficient income and both parents passed away and im not close enough with anyone in my family to get a co-signer……….redicilous
If you have sufficient income, why would you want a credit card?
i need to build credit
Then you might want look into getting a secured credit card.
That’s messed up that I’ll now need a coworker to get a credit card at 18 I have parents that absolutely will not do anything for me not even fill out there tax info so I can get financial aid for college or sign any of my scholarship forms now I need their signature how the hell am I supposed to build credit to get a car now?? I’m old enough to pay the electric bill and home schooling bills under my name but not an fm credit card I’m really hatinglife more and more