Passage of the new 2009 Credit Card Laws may limit student access to credit. For years, new college students have been offered Visa and MasterCard access with little or no qualifying information required. By issuing cards to those new users, lenders hoped to create a long term (and profitable) relationship with these new customers.
Don't have a job? No problem. No income? No problem. Students signed up for credit accounts, used the cards and often found themselves in financial difficulty paying even the low monthly installments. The low initial interest rates were often raised drastically on these accounts and the default rate is the highest for any demographic group. Students registering for college were encouraged to sign up for various credit accounts by lenders who set up booths for "registration".
Burdened with student loans to repay, new graduates too often found their credit damaged by reckless use of credit cards during their first year or two of college. The black marks on their credit followed them for years and damaged their ability to obtain auto loans, buy homes and even rent apartments in some areas.
The dangers credit cards held for young college students has been apparent for some time but nothing has been done until now to require lending institutions to stop issuing accounts recklessly. Account limits on the student cards were usually less than $1,000 and often only $3-500 per account.
Young people living away from home for the first time often had no experience in budgeting or in using credit wisely. Many would quickly charge up to their limit on their card and then attempt to pay off the card with the monthly minimum required. One missed or late payment would result in the interest rate on the account to soar to over 30%. The result is a student with a $1k limit charging to that limit would be out of school before he could pay off that debt from his freshman year.
Under the new 2009 law, consumers under the age of 21 will have to prove an ability to repay before they can obtain a credit card. This may be a job history of their own or parental permission where the parent takes responsibility for paying the account.
That a lender would require proof of ability to pay off a loan would seem to be common sense, wouldn't it? Sadly, it seems common sense appears in the financial markets only when laws demand it.
