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Can Parental Consent Curb Credit Card Debt?

April 24, 2009 08:00 AM
by Sarah Amandolare
A new bill would require anyone under 21 to have parental consent before obtaining a credit card, the latest indication of the government's crackdown on potentially manipulative banking policies.

Astronomical Student Debt Prompts Regulation

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In New York City and on Long Island alone, student credit card debt is up to $1.8 billion, and most are using credit cards to cover education-related expenditures, a new student debt report has revealed. The fix, according to some legislators, is requiring parental consent for card issuance for anyone under 21. This idea, coupled with a requisite financial literacy class, is included in new legislation already approved by the Senate Banking committee.
New York Sen. Charles Schumer is in favor of the bill, according to Newsday. "Credit cards should be a leg up for college students, not a leg trap that snares them in unbearable debt," he told the publication.

The parental consent rule is included in a bill known as the Credit Card Accountability, Responsibility and Disclosure Act, and received Senate approval in late March despite Republican objection, Bloomberg reported. The measure is led by Senate Banking Committee Chairman Christopher Dodd, who says it will protect credit card holders from spiking interest rates, and stop credit card companies from changing agreement terms.

But whether the move will change the way students use credit, or just further entangle the process by involving mom and dad, remains to be seen.

College students are already up against the fact that some American universities maintain profitable relationships with credit card companies. In many cases, the relationships encourage poor financial habits and come at the expense of students.

Background: The bailout and credit regulation

This week, Congress passed legislation known as the Credit Cardholders' Bill of Rights that would "curb credit card fees and limit consumer penalties," according to Reuters. The measure would make "restrictions on deceptive practices" the law, and was passed Wednesday, a day before President Barack Obama's scheduled meeting with executives of the banking industry at the White House.

Consumers will likely welcome the tightened legislation and reigning in of banks and credit card companies, particularly since banks that accepted bailout money have continued to hike fees on credit cards, loans and other items. In their defense, banks say they are attempting to restore profitability, and to pay back the government loans as soon as possible.

Related Topic: Skewed credit scores

Consumers have found it increasingly difficult to trust credit card companies.

In January, the media reported that some credit card companies use other shoppers' consumer habits to determine how much credit to give you. Though credit scores were once the primary gauge for judging consumer responsibility, there has been a shift toward rating cardholders based on where they live, shop and work, a practice known as behavioral scoring.

Reference: Personal finance; history of debt

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