President Barack Obama recently signed a bill preventing people under the age of 21 from obtaining a credit card unless they have a co-signer or can show they have the capacity to pay back loans on their own.
The CARD Act was designed to prevent students in debt as well as other consumers from being taken advantage of by credit card companies with unfair lending and billing practices.
The main points of the law look to have good intentions, as its goals include limiting interest rate hikes, making due dates clearer, allowing more time to pay monthly bills, giving more advance notice of changes in terms and rates as well as limiting fees for going over a credit limit.
These ideas could easily benefit credit card holders, especially the busy college student who may be more likely to get into trouble with his or her credit card payments.
In fact, college students who paid their own credit were reported to have an average debt of $2,623 in 2007, according to a recent study done by U.S. PIRG.
However, there are some important drawbacks to Obama’s new policy.
The bill limits the amount of money a student under 21 can borrow to $500 or 20 percent of his or her annual income, depending on which number is greater.
These numbers seem arbitrary. Who is to say what amount of money is enough for a person, especially a university student to subsist on? Five hundred dollars may not even be enough money to buy textbooks for two quarters.
The bill also puts those who do not have a legal adult in their lives at a disadvantage. Those who live entirely on their own may not be able to get a credit card in this case.
The fact that the bill limits on-campus marketing is a problem for universities that think it is in their best interest to allow credit card companies to do on-campus marketing campaigns. While UC Davis does not allow this, other universities believe that this is how students will be educated about credit card issues.
The administration needs to take a different approach. There needs to be a better way to teach students about the potential benefits and pitfalls of credit.