Washington
Congress passed legislation last week that would shield students and other consumers from sudden spikes in interest rates and fees, but that could make it harder for young people to access credit to pay for college.
Lawmakers were rushing to complete a final bill by Memorial Day to meet a goal set by President Obama, who was expected to sign it. The legislation would extend broad new consumer protections to all credit-card holders. But it would offer special protections to college students.
The bill would bar credit-card companies from issuing cards to students younger than 21 unless their parents agreed to accept financial liability or the students could demonstrate an independent ability to pay. The measure would also cap the amount students younger than 21 who were issued cards could borrow at $500 or 20 percent of their annual income, whichever was greater.
Student groups and consumer advocates applauded the bill, saying it would protect students from misleading marketing and unfair terms and conditions. Many credit-card companies inundate students with offers by mail and market directly to students on campus, enticing them to their booths with offers of free food and T-shirts.
"Young people, especially students, are singled out and targeted by credit-card companies," said Pedro de la Torre, a senior associate with Campus Progress, a progressive advocacy group. The bill, he said, would "help ensure that young people are treated fairly."
But critics say the bill could limit students' access to credit at a time when they are more reliant on plastic than ever before.
According to a recent survey by Sallie Mae, the nation's largest student lender, 84 percent of undergraduates have at least one credit card, and 92 percent of them use credit cards to pay for some college expenses. The average balance held by college students is $3,173.
Mark A. Calabria, director of financial-regulation studies at the libertarian Cato Institute, says the bill "treats students as children."
"You're taking away students' right to credit and treating them as second-class citizens," he said. "This is government overreach."
Student groups say they aren't worried that the tightening of credit will create challenges for students who rely on credit cards to pay tuition and other college expenses.
"I'm not convinced that this is going to be a huge problem, that people aren't going to have enough money," said Carmen Berkley, president of the United States Student Association. More troubling, she said, is the large number of students graduating from college with unmanageable amounts of credit-card debt.
Disclosure of Marketing Agreements
The bill would also take aim at marketing agreements reached by colleges and credit-card companies.
Under an amendment inserted into the bill before Senate passage, colleges would be required to publicly disclose such arrangements, and credit-card companies would have to report how much money they were giving to colleges and their alumni associations through those agreements.
"Colleges should not be encouraging their students to sign up for products with high interest rates and fees that can get them bogged down in debt," said Sen. Dianne Feinstein, a Democrat of California, the sponsor of the amendment.
The amendment would also bar credit-card companies from offering gifts to students in exchange for completing credit-card applications.
Still, student groups didn't get everything they would have liked in the bill. Senate leaders refused to consider an amendment by Sen. Richard J. Durbin, a Democrat of Illinois, that would have made it easier for retailers, including colleges and college bookstores, to offer discounts to customers who pay with debit cards rather than credit cards.
The amendment was supported by the U.S. Public Interest Research Group and the National Association of College Stores, which estimates that its members paid $85-million in credit-card processing fees, known as "interchange fees," in 2003-4.
Richard Hershman, director of government relations for the association, said the provision would have helped "lower a source of escalating and uncontrollable costs for institutions, which are ultimately paid for by students through higher prices."
