Lubbock Left

Thank goodness, in the next week or so we will finally see a Credit Cardholders Bill of Rights signed into law.

I have been waiting a long time to see legislation like this, and it’s finally cleared both the House and Senate. President Obama should sign it into law as soon as the differences are reconciled.

I’m particularly happy that the credit cardholders bill of rights includes strong protections for minors and for college students:

Students:
For college students that don’t have a co-signer, the max amount of credit extended will be limited to the greater of 20% of the student’s annual gross income or $500 dollars. The aggregate amount of credit extended from all of their credit cards will be limited to 30% of the student’s annual gross income (for the recently completed calendar year).
Creditors are prohibited from opening a credit card account for any college student who does not have any verifiable annual gross income or already maintains a credit card account with that creditor, or any of its affiliates.

Minors:
For consumers under 21 years old, the signature of a parent or another responsible adult who will take responsibility for the debt is required, or proof must be found that the under-21 consumer can repay the credit.
Creditors are prohibited from providing credit to consumers under age 18. (unless they are emancipated under state law, or the consumer’s parent or legal guardian is designated as the primary account holder).

These are sensible protections that will help to keep young adults from getting buried under a mountain of debt long before they have learned the skills to dig their way out.

I also think that credit card companies should not be allowed to solicit on public university campuses, but it will probably be a while before we see a law like that.

Predictably, bankers are already squealing about the forthcoming law. From the American Bankers Association:

Credit cards are a strong economic driver and are relied upon by consumers and small businesses to make payments and to bridge short-term financial gaps. The goal in the legislation should be to obtain the right balance: providing protections, while maintaining the important role of credit cards in providing loans to consumers and small businesses. Unfortunately, we believe the bill does not achieve that balance and will therefore cause an unnecessary decrease in credit availability.

Most importantly, this bill fundamentally changes the entire business model of credit cards by restricting the ability to price credit for risk. What has been a short-term revolving unsecured loan will now become a medium-term unsecured loan, which is significantly more risky. It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate. While the recent Federal Reserve rule also contained restrictions on pricing card credit for risk, this bill goes much further in this and other areas. We are concerned that the Senate bill will have a dramatic impact on the ability of consumers, students, and small businesses to obtain and use credit cards.

Translation: credit cards have been pushed by eager lenders into ridiculous realms of risk, and that’s good somehow?

The only people who will miss the credit card usury we have seen will be the lenders currently doing the screwing.