Thanks to Congress for responsible credit bill

The financial crisis and the fallout of rising consumer debt has put credit card companies under tough scrutiny. Earlier this year, we expressed our support for a bill proposed in Illinois that would stop credit card companies from targeting young people with giveaways.

Last week, President Obama signed into law a bill that would curb the use of predatory tactics by credit card companies, including soliciting people under age 21. The Credit Card Accountability, Responsibility, and Disclosure Act restricts credit card companies from raising interest rates unless cardholders have fallen at least two months behind on minimum payments, and requires them to give notice before doing so.

The law also requires companies to bar card users from exceeding their credit limit unless they have agreed in advance to paying a fee if they do. Most importantly to our demographic, the new law requires people under age 21 to prove that they have an independent source of income or have a parent co-sign before getting a card. The law also caps yearly spending limits at $500, or 20 percent of income, whichever is higher, for cardholders under 21. The consumer advocacy group Consumers Union called the law a “win for everyone who’s ever been abused by the tricks and traps of the credit card industry,” and young people certainly fit that bill.

According to a survey conducted by student lender Sallie Mae, about 85 percent of undergraduate students last year had at least one credit card. The average debt carried by college seniors with credit cards has increased from around 3,000 to over 4,000 dollars since 2004. While young people, like everyone else, should ultimately be responsible for their spending behavior, the new law will make students who get cards in the future more likely to use them responsibly, a cause we applaud. Credit card debt accrued in college can do permanent damage to credit scores, and make it harder for young people to get loans in the future for purchases like houses and cars.

With many students burdened by ever skyrocketing student loans, the last thing young people need is another financial obstacle on their path to independence. The Sallie Mae survey also discovered that a third of students with credit cards rarely discussed the cards with their parents. As uncomfortable as talking about money can be, leaving college with a mountain of debt is even more uncomfortable. It’s essential that students who are financially supported by their parents talk to them about their spending and credit decisions. By forcing parents to co-sign for their children’s cards, the law will give parents an incentive to initiate a dialogue with their children about credit and responsibility.

Many responsibilities already come with transition periods. Before getting a driver’s license, you need supervised hours with a permit, and before going to college, you go to sleep-away camp. Before becoming adult credit card users, students will benefit from a transition period with co-signees and reasonable credit limits. We applaud the President and Congress for taking the right steps to mold today’s students into responsible credit card users.