THE CREDIT CARD ACCOUNTABILITY, RESPONSIBILITY AND DISCLOSURE ACT & YOUNG ADULTS

In a post regarding the ways credit card companies are behaving in anticipation of upcoming rule changes and a comment by Barney Frank intimating that the government may consider early implementation of those regulations, I came down fairly hard on card issuers.

Today, I’m going to stick up for them a little bit.  Well, I’m going to take aim at one provision of those new regulations that seems ill-conceived.  Mainly, though, I’m sticking up for college kids who are about to be on the receiving end of a bad deal.

You see, one of the new regulatory changes that will become effective in February 2010 involves issuing cards to legal adults under the age of 21.  Once the Credit CARD act goes into effect, anyone under 21 who wants a piece of plastic will either need a co-signer or the ability to prove a source of income sufficient to evidence an ability to make card payments.

The undoubtedly well-intentioned justification for the regulation is the fact that many young people make lousy decisions regarding credit use and end up digging a big ol’ hole for themselves.  Instead of using credit cards responsibly, critics argue, kids develop a form of plastic-induced insanity that leads them to make a series of wholly unnecessary purchases without any consideration of the consequences.

The credit CARD Act, then, seeks to protect people from making poor personal decisions.  While I’m far from a laissez faire-lovin’, Milton Friedman-worshippin’, Ayn Rand-readin’ partisan who will fight for libertarian ideals at all turns, that kind of paternalism does rub me the wrong way.

At some point, people need to have the freedom to make decisions.  They deserve the chance to benefit from smart calls and they have a responsibility to confront the consequences of buying supreme pizzas for the entire third floor of their dormitory every Saturday for a semester.  It seems to me that the age of legal adulthood (when, by the way, you’re free to form contracts of all sorts) is a good time to give up on the paternalistic control of behavior and to allow people to become grown-ups, with all the good and bad associated with that transition.

That’s not how the C-CARD legislation sees it, though.  It’s so worried about curbing predatory credit extension that it’s wiling to restrict college-aged kids, particularly students, from snagging a Discover Card.  If you’re not 21, you better have an income.  Either that, or you’ll need to talk someone into co-signing.

THE DOWNSIDE OF PROTECTING COLLEGE KIDS

In addition to the fact that this restriction is an unnecessary bit of nanny action, it has other negative consequences for those it’s intended to protect.

Building a Credit History: Getting and smartly using a card is a great way to build a positive credit history.  That can be an incredible asset after one tacks a sheepskin to his or her wall and starts trying to live like a fully functioning adult.  By limiting credit access, C-CARD prevents people from building a good reputation and an opportunity to find appropriate credit later in life.  This story of a basically debt-free 27 year-old who can’t get a J. Crew card is a perfect example of why this matters.

Making a Tough Time Tougher. While every college campus has its fair share of students who are living high on the hog thanks to parental largesse, many students are trying to get through school on their own, without that kind of help.  Unfortunately, it’s an expensive proposition that involves a series of expenses that your average full-time book-hitter can’t always meet.  Right now, students can use a card to fill in those gaps.  It might not be an idea solution, but it can spell the difference between a quality education and a retreat from higher learning.  Cutting the under-21 set off from credit cards (or at least greatly reducing the numbers of those who can get them) isn’t going to help one darn bit and may leave them with no readily-available alternative means of funding school.

DOES THIS MEAN I WANT TO HUG CREDIT CARD COMPANY CEO’S?

Don’t interpret this criticism of some credit CARD Act elements as a defense of credit card companies.  They’re efforts to convince kids to sign up for cards by dangling free t-shirts and other goodies in front of them are tasteless.  Their track record in terms of providing adequate information to new sign-ups isn’t that hot.

There are plenty of reasons why people write long articles about the things young people need to know before the agree to waltz with the devil of consumer debt.  Many of them are completely valid.

It seems as though the best idea would be to crack down on deceptive practices and to encourage young people to learn a little bit about money management instead of simply cutting them off.  The C-CARD approach not only treats young adults like children, it also puts them at some degree of financial risk by eliminating the plastic option for many.

If I was under 21, I’d be trying to score a card before February.  I’d also be irritated that my parents could decide to take up rock climbing as a hobby, that my older sister was still allowed to buy that daily bottle of white wine, that her morbidly obese husband was undoubtedly heading to the drive-through for yet another Big Mac, that uncle Jeff was about to risk another $1,000 on a stupid penny stock tip FAXed to his workplace, that my old grade school buddy was whittling away his inheritance at the poker table while I couldn’t get a lousy Visa card with a $1,000 limit to help me buy my damned textbooks and was going to have a harder time getting a smart loan for a good reason after I earned my college degree and entered the workforce.