Tulsa World: Credit-card law aims to protect collegians

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Credit-card law aims to protect collegians

By SONYA COLBERG NewsOK.com
Published: 5/27/2009 2:24 AM
Last Modified: 5/27/2009 5:05 AM

OKLAHOMA CITY — The new credit-card law will protect college students but also could cause unintended consequences for other cardholders.

One of the biggest aspects of the bill signed by President Barack Obama, which goes into effect in nine months, restricts credit lines to $500 or 20 percent of their income for people younger than 21.

No cards will be issued to consumers younger than 21 unless they have a co-signer or can prove the financial ability to pay the charges, although it's unclear how that is proven, said Bill Harde- kopf, CEO of LowCards.com and author of "The Credit Card Guidebook."

One unintended consequence likely would affect cardholders who pay their balances every month.

Those people use the company's money without paying for the privilege. But now they might be charged additional fees or lose rewards programs, experts said.

Only about 20 percent of credit cards now carry annual fees, according to LowCards.com. After the changes, look for more cards to charge $50 to $100 per year.

That's just one possible outcome, Hardekopf said.

"The speculation is, and we think this will happen, that the interest rate is going to go higher for everybody," he said.

The reason is because of the law's protections, particularly this one: The interest rate will be frozen for one year. Credit-card companies that could once raise rates whenever for virtually any reason will be looking for new ways to make money.

Three of four Americans have a credit card, Hardekopf said, so credit-card companies shouldn't be expected to bear all the responsibility of teaching young people the art of card ownership.

"The issuers know if Junior runs up too much of a credit card debt, chances are that Mom or Dad is going to pay it off," he said.

Hardekopf said parents should show their credit-card bills to their teenagers and explain what happens to a credit rating if late fees are incurred.

"The legislation is going to be good at tackling that problem, but being a parent, I think the real blame lies with us," he said. "It's best for them to learn and take their lumps while they're under your roof and eyes."

Marketing to college students is a money maker

Credit-card companies discovered years ago that marketing to college students could be lucrative and result in lifelong customers.

Companies often set up booths on campus and at athletic events, where they offer free T-shirts, pizza and other enticements to students who apply for credit cards. They also mail credit-card applications to college students and alumni.

The effort works.

Eighty-four percent of undergraduates had a credit card last year, according to a study by student lender Sallie Mae.

Only 17 percent of surveyed students said they regularly paid off their balance, leaving the average student with more than $4,100 in credit-card debt by graduation.

The University of Oklahoma has had a long-standing $13 million agreement to allow First USA to market credit cards to students and alumni.

Spokeswoman Catherine Bishop said in a statement that OU offers extensive educational programs and counseling to help prevent credit-card abuse and assist students in managing their money and credit wisely.

Credit-card companies have avoided Oklahoma State University students for the last four years, spokesman Gary Shutt said.

According to a resolution passed by the student government association, companies must be approved, pay a $250 charge for every day they solicit in the Student Union, and pay the student government $1 for every application, he said.

scolberg@opubco.com By SONYA COLBERG NewsOK.com

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	Report Comment PAN, (5/27/2009 3:06:04 AM) One day AFTER this new law passed, we received a notice from our one and ONLY credit card company telling us that our interest is going from 9.(something) percent per month to over 22 percent per month. We use the card and then pay the balance before it comes due. Guess where this card went to? RIGHT! TO THE SHREDDER!! The card is cancelled with the company and it is GONE!! As always, when 'O' makes his great 'changes', he screws up something!!
	Report Comment Intermittently Semi-Serious, Broken Arrow (5/27/2009 6:25:07 AM) 20% or $500 -- i missed the "whichever is greater" part -- or is it less? Is this weekly, monthly or anual? This is either a poorly written law, or a poorly written story. Either way, it seems Mr. Law School Obama missed his history classes, since the government's meddling in credit issues caused every collapse of every credit company in recent history, with the exception of a few poorly run banks.
	Report Comment Tony G, Tulsa (5/27/2009 6:36:55 AM) I like the new laws, am smart enough to pay off my balances. The new laws will prevent credit card companies from taking advantage of someone who may get themselves in a financial pinch.
	Report Comment NE Oklahoma Girl, NE Oklahoma (5/27/2009 8:14:50 AM) Why is it the governments responsibility to take care of people's finances? How hard is it to understand that if you pay off your balances, you don't get late fees? Why aren't kids taught anymore that if they can't afford something, don't buy it? Just my opinion.
	Report Comment Graychin, Eucha (5/27/2009 9:30:57 AM) This article is bank propaganda. Unintended consequences my... foot. Credit card banks make plenty of money from "deadbeats" (as they refer to us) who pay off their balances every month. Merchants pay a fee of 3% to 5% on all of their credit card sales. The banks have never passed up opportunities to make money from every transaction, and to represent otherwise is Bravo Sierra. If my credit cards start jerking me around, I can always go back to paying for things with cash.
	Report Comment CWG, Tulsa (5/27/2009 12:32:03 PM) Amen Graychin, credit should be tightened up so that responsible people don't get saddled with higher fees.
	Report Comment Diana D, madill (5/27/2009 3:05:41 PM) here's what it did't fix...they should NOT be able to charge five dollars when you pay your bill on the phone, or by cell phone..they get their money nearly immediatley, why should we have to pay that? I'll go back to snail mail first..
	Report Comment DonInTulsa, (5/27/2009 3:39:08 PM) Credit card companies should never have been issuing cards to people under 21 in the first place. A lot of kids that age aren't financially responsible; I know I wasn't when I was in my teens and early twenties. I think the bill is sensible legislation. If any of the credit card companies I deal with decide to start charging an annual fee, I have no issue with cutting the cards and mailing them back to the banks with insertion instructions attached.

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