Last week, President Barack Obama announced that he wants to reform the way credit card companies operate, to make it easier for struggling families to make payments without going into credit card debt. Obama said he wants a bill that would add restrictions to credit card fees and limit interest rate changes. Whatever President Obama did behind the scenes, it's working.
Today, the House passed a credit card bill that will reform the credit card industry. Yesterday, the Senate voted on the Credit Card Accountability Responsibility and Disclosure Act. This means the bill will likely be on President Obama's desk before Memorial Day, just like he wanted.
One of the most important parts of this act for youth is that if you’re under 21, a company must get a signature of a parent or another person to take responsibility for the debt, or the company must obtain some other type of proof that the person under 21 can repay the money. This is huge for youth because if you’re under 21 and you don’t have someone who can co-sign your credit card application, you won't be able to get a credit card. Another important aspect for youth is that credit card companies won't be allowed to raise your interest rate until you have missed your payments for 60 days. This gives youth a two-month window to pay back money or fix an error with their accounts without having the added burden of interest rates going up in the process.
These two elements are important since most credit card companies target young people for credit cards, luring them in with special deals without them realizing the long-term consequences. Many people leave college with credit card debt in addition to student loans. Now, the question is, if Obama succeeds and the credit card bill becomes law, will people stop spending more than they can afford or will they turn to other types of lenders?