Wednesday, March 09, 2005

Giving Credit Where Credit Isn't Due

A bill that would make it much more difficult for people to forgive their debts by filing bankruptcy has cleared its last hurdle in the Senate. From there, the bill is expected to have a smooth ride the rest of the way.

I know there aren't any high-powered legislators reading this blog, but if anyone is listening, I have a suggestion for a companion bill. My bill would forbid credit-card companies from recruiting new customers on college campuses. Studies have shown that, while the majority of bankruptcy filings are precipitated by some sort of health crisis, a significant number of people have chosen this route because they're in over their heads with credit card debt. And many people start down that rocky road when they're in college.

Walk into the student union at any college, and you'll probably see the table with its brightly-colored banner hawking free T-shirts, contests, and other prizes, all in exchange for your signing up for their credit card. It's usually somewhat harmless at first--mine was a Citibank VISA with a $500 limit--but the slope gets slippery shortly thereafter. What starts out as an "emergency only" card suddenly becomes a fall-back when an expensive dinner comes up or a cool new CD gets released.

The company doesn't help things, of course, raising the limit of its new customers way too soon in the process (even before there's significant income to back up the newly-granted credit). One card gets maxed, but there are five more issuers lining up to offer another one. Before long, someone can amass debts in the tens of thousands of dollars before they even reach their 25th birthday. And it only gets worse if you miss a payment or go over the credit limit; what starts out as an "introductory 2.9% interest rate" can then be raised to as much as thirty percent. The worst part is that a user may never know that he's over the limit, because the card issuer still approves the purchase, and they will then assess an "overlimit fee" that will--guess what--put the user even more over the limit.

There are plenty of things wrong with the bill that's currently in the Senate, especially the lack of a loophole for bankruptcies caused by medical crises. The predatory nature of credit-card banks should be punished, not enabled...but their pockets run deep (I'll save my thoughts on how lobbying should be outlawed for a later post). The best place to start would be to get them off the college campuses, because, just like marijuana is sometimes called a "gateway drug" to the harder stuff, the college student credit card, left unchecked, can be a gateway to financial disaster.

Not too challenging so far: Yesterday's challenge proved to be no problem this morning, and it feels great to have so much done already. Plus, when's the last time I did a morning blog post? I think I'm gonna like this...

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