Credit Card Companies May Not Target Minors Congress has passed a bill that would enact sweeping new restrictions on the credit card industry. The bill does away with arbitrary rate hikes and bans issuing cards to minors.
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Credit Card Companies May Not Target Minors

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Credit Card Companies May Not Target Minors

Credit Card Companies May Not Target Minors

Credit Card Companies May Not Target Minors

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Congress has passed a bill that would enact sweeping new restrictions on the credit card industry. The bill does away with arbitrary rate hikes and bans issuing cards to minors.


Now let's talk about protection from a different kind of predators, in particular, creditors. Young adults are one target of the sweeping credit card reform bill that just passed Congress and awaits the president's signature. The new legislation limits credit card companies marketing to young people.

NPR's Wendy Kaufman has more.

WENDY KAUFMAN: Young adults under the age of 21 who want a credit card in their own name will have to show an independent source of income or they'll have to get a co-signer, typically a parent or guardian. The provisions were designed to keep young people from getting deeply into debt with their credit cards. Not surprisingly, the American Bankers Association isn't thrilled with this or many other provisions of the new legislation. Here's the association's Peter Garuccio.

Mr. PETER GARUCCIO (Spokesman, American Bankers Association): We understand that policymakers felt a need to provide some additional protections in this area. But our concern is that responsible adults in this group will be limited in their ability to get credit cards.

KAUFMAN: On the other hand, Christine Lindstrom says the legislation is definitely needed. She is with the U.S. Public Interest Research Group, which survey college students about debt.

Ms. CHRISTINE LINDSTROM (Program Director, U.S. Public Interest Research Group): And credit card companies unfairly targeted them with bad terms and conditions and aggressive marketing.

KAUFMAN: How much aggressive marketing there is, is the subject of some debate. As to the amount of debt young people have, it varies tremendously just like it does among older adults.

Wendy Kaufman, NPR News.

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Q&A: Credit Card Reform

Congress passed legislation that will overhaul the credit card industry by placing new restrictions on interest rate hikes and penalty fees that consumers face.

The Senate passed the bill on Tuesday and the House followed suit on Wednesday. President Obama has said he'd like to sign it into law before Memorial Day.

Here, a look at how some of these changes will affect consumers.

What impact will this legislation have on credit card interest rates?

The legislation will prevent arbitrary interest rate hikes by credit card companies.

Banks will have to wait 60 days before raising the rate on late-paying customers, and they will be required to reinstate the old rate once the cardholder makes payments on time for six months.

The legislation will also prevent companies from raising the interest rate on any outstanding credit card debt consumers have if they are late paying bills for other credit cards they might use. And it will require credit card companies that choose to increase interest rates to periodically review and lower them if the review warrants it.

For new credit card customers, the legislation will also prevent issuers from increasing rates in the first year after the account is opened.

Many banks already offer cards that comply with some of the rules contained in the legislation.

How about the fees that credit card companies charge?

Credit card fees have long been a thorn in the side of consumers. The legislation will prevent issuers from charging a fee to pay off credit card debt by mail, telephone or electronic transfer, except when it requires someone's help to expedite the payment. It will also require penalty fees to be "reasonable and proportional" to the violation.

What about all the credit card terms and conditions?

The legislation requires credit card holders to receive 45 days' notice for any interest rate, fee or finance charge increases. Issuers will also have to post on the Internet the terms of their credit card agreements (some banks already do this).

The 45-day notice and some other parts of the legislation are already scheduled to take effect in July 2010 as part of Federal Reserve regulations. Any legislation, however, will place further limits on fees and on those eligible to obtain a credit card.

The legislation aims to protect people under 21. How will that work?

Young people who are new to the concept of credit cards can quickly find themselves in a pile of debt. The legislation aims to protect people under 21 by requiring the signature of a parent or guardian who will take financial responsibility for the debt. Alternatively, those under 21 could obtain a credit card without a parent's signature as long as they are able to show they have the financial means to repay any balances they might carry on the card.

College students are often lured by the promise of credit cards. The legislation will bolster protection for these students against aggressive credit card marketing and provide more clarity about deals that have been made between credit card issuers and universities.

Are there any benefits for people who pay their credit cards on time?

Yes. The legislation will ban double-cycle billing, under which issuers apply interest to a balance that has already been paid.

It will also require that payments made at local bank branches be credited the same day. And it will prohibit late fees if the issuer delayed crediting any payment.

How soon will these changes take effect?

The requirement that the credit card industry notify cardholders of an interest rate increase will go into effect 90 days after the legislation is enacted. The industry will have nine months to make all the other changes.

Who will police the credit card companies?

The Federal Reserve Board will be the main agency reviewing the practices of the industry and the terms of credit card agreements they make available to consumers. Credit card issuers are also subject to regulation by other state and federal agencies.

How has the financial services industry reacted to this?

Edward Yingling, president of the American Bankers Association, said Tuesday that some of the provisions will "undermine the availability of credit," adding that the legislation would change the "entire business model of credit cards by restricting the ability to price credit for risk."

Banks say consumers can expect more cards with higher annual fees and fewer cards with low competitive rates if this legislation is enacted.

"Credit cards are unsecured loans. There is no collateral backing them up like a home or a car and so when your risk profile changes, their credit terms change," says Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, an industry group. "To the extent that you limit that adjustment — the ability to be flexible — then you're going to limit the availability of credit or increase the price."

With reporting by NPR's Joshua Brockman, Audie Cornish and The Associated Press

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