The new law on credit card reforms signed by President Barack Obama will among other things prohibit credit card companies from issuing cards to young people in college under 21 if they cannot prove they have the means to repay the debt or if a parent or guardian does not co-sign for the credit.
Barack Obama signed the law today Friday 22nd May and the changes will take effect in nine months.
Apart from limiting the number of young people who can obtain a credit card, the law also sets new limits at what time and to what extent banks could charge their fees. For instance, the law requires that, an increase in the interest on a credit could only be applied if a consumer is more than 60 days in default on payment. Even in that case, the banks are obliged to restore the previous interest rate if the consumer commences payment and is able to service the minimum balance within six months. In addition, card users will have to receive 45 days' notice along with an explanation before their interest rate was increased.
College students are at risk
Credit card companies like Capital One and MBNA and present students with plenty opportunities to borrow money they are sometimes not able to repay. On average, students graduating from college come out with a debt of $4,100, representing a 41 % increase within the last five years.
It is hoped that the law would ensure that students spend under better terms and less likely to be trapped in paying higher interests on their credit on account of delay in payment.
What the banks say
The banks however, assert that the law would limit the amount of credit available in general, and could mean that some consumers and small businesses (that is, younger people and start-up businesses respectively) would not be able to access credit at all.
But Congress has assured that the law would not be applied retroactively. People under 21 who already have cards will be allowed to keep them.
David Swan
david.u.swan@gmail.com
http://www.thinkingmoney.org
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