Business as Usual by Marlize van Romburgh
Business as Usual by Marlize van Romburgh

I always find it amazing that the college student stereotype can be so vastly different depending on the circumstances. On one hand, we’re the ‘future’ – talented young engineers, scientists and business people leading the way into tomorrow. On the other, we’re ignorant and irresponsible youngsters — not yet ‘real adults’ — who need constant special protections from the reality of the real world. The most recent and one of the more condescending examples of this kind of paternalism is the credit card reform bill; a piece of legislation with arguably noble intentions but a whole host of unintended consequences.

When the credit card reform bill was passed on May 19, it received praises all around for protecting consumers from what its proponents see as arbitrary rate hikes, misleading terms and unnecessary punishment for late payments and exceeding credit limits. Some even went so far as to call the legislation a “credit card holder’s bill of rights.”

First, let’s get one thing straight: There’s no such thing as a “right” to credit. It’s actually a privilege and you have to pay a pretty hefty interest rate for it. More importantly, this bill with all its noble intentions will likely result in less access to credit, particularly for those who need it most – and that includes college students.

One portion of the legislation bans credit card companies from issuing cards to consumers under the age of 21 unless a parent or other guardian co-signs the application. Full-time college students between the ages of 18 and 21 who do not have co-signers will not be allowed to have more than $500 or 20 percent of their gross income in credit. The act also limits pre-approved credit offers to young consumers and prevents credit card companies from raising a customer’s credit limit without getting written approval from that consumer.

All of this is done in a supposed effort to protect us poor, naïve students from being exploited by the big, powerful credit card companies preying down on us — but honestly, this bill stinks of exactly the kind of paternalism I think most of us have outgrown by the time we’re in college.

A study by Sallie Mae, the government student loan agency, found that 84 percent of undergrads have at least one credit card, and that more than half of students have more than four credit cards. Most students with credit cards hold an average balance of $3,173.

“Just because credit-card companies are taking a hit … doesn’t mean that they should be allowed to give thousands of dollars to young people with no way of paying it back,” said Carmen Berkley, president of the United States Student Association in a Christian Science Monitor article.

It’s quite an assumption on her part that most of us have no way of paying back our debts and even more so that a lender would knowingly extend credit to someone who will default on a loan.

Signing up for a credit card is no different than any other deal between two parties: One party provides something (in this case, a small, easy-to-use plastic card with a limited amount of pre-approved credit) and the other party pays something for that great service (in this case, a sizeable amount of interest for the convenience of such a card).

Advocates like Berkley assume that 20-somethings like ourselves aren’t old enough or responsible enough to use credit wisely, and that’s why we need special government protection to prevent us from making bad decisions.

The truth is, many college students use credit cards because they have to. For everything from quarterly textbooks to financial emergencies, credit cards can be a savior when you simply don’t have enough money to make ends meet.

My car’s “check engine” light came on one day last year, and 24 hours later I was walking out of the repair shop with a $1,000 bill. I don’t know about you, but I don’t have a few thousand dollars just lying around in my piggy bank, so I swiped the plastic and drove off in my newly-fixed car. I’m not sure how I would have paid for it without my Discover Card, short of running to my parents for help.

My guess is that a lot of college students use their credit cards similarly – not as an excuse to live above their means, but as a source of financing during a time when we’re not making much money and already spending a lot on tuition, books, food and rent.

College is all about what economists call opportunity costs. We come here, delaying the immediate benefits of a job and paying thousands of dollars for an education, so that we can eventually have a financially and intellectually rewarding career. For these four-plus years until we graduate, however, we’re generally cheap, broke and living on ramen noodles and beer – or so the stereotype goes, anyway.

“The purpose of any form of credit is to borrow against your future earnings in order to enjoy some consumption today,” said Mark Calabria, director of financial regulations for the Cato Institute, in the Christian Science Monitor article. “Whether that consumption is in the form of textbooks or beer and pizza should be left up to the individual — we are talking about adults here — and not the state.”

The point is this: Credit card debt isn’t necessarily a bad thing. Some people use it to build their credit history, others make the decision to accumulate short-term debt now knowing they can pay it off in the near future, and still others rely on credit cards during fiscal emergencies.

Like most government interference in what would otherwise be a simple deal between two parties, the credit card reform act lacks serious common sense. It limits consumer choices by restricting their access to credit, and it punishes credit card companies for simply doing what they do. It’s not just the 21-and-under provision either, but the effects of the entire bill on the credit market that make it such a poor piece of legislation.

Sure, there are plenty of horror stories about cases where credit card companies have broken their end of the deal, but as Todd Zywicki, consumer credit expert and a professor at George Mason Law, explained in testimony before the Senate Committee on Banking, Housing and Urban Affairs, blanket legislation isn’t the answer. “There are ample tools for courts and regulators to attack deceptive and fraudulent practices on a case-by-case basis,” he said.

Zywicki’s research is actually really interesting, and I encourage you to read more of it. One of the main conclusions he makes is that, contrary to popular belief, the credit card market is actually highly competitive; most consumers are aware of their interest rates and do shop around for better offers. And like any competitive market, it means that those credit card companies which treat their customers unfairly will eventually see business decline as consumers simply go to other companies.

Really, the credit card reform bill is just one more example of the many overbearing business regulations taking hold nowadays. Like most forms of regulation, it stifles consumer choices, drives up the service provider’s costs (which are then passed on to consumers) and punishes businesses for attempting to make a legitimate profit. Thanks to this bill, we can now expect higher rates all around as credit card companies attempt to compensate for the extra risk they’re forced to take on.

We don’t need to be ‘protected’ from our own choices; we need to take responsibility for our own actions. If now isn’t the time to learn what happens when you make a late payment on a credit card, when is?

Marlize van Romburgh is a journalism senior with an economics minor and the Mustang Daily editor in chief.

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