When it comes to student debt, most people think of college tuition. But credit card debt can be almost as crippling (“Buy Now, Pay Later,” by Niko Amber, The Concord Review, Fall 2019). With little regulation, banks have been able to reap huge profits at the expense of young people barely out of high school.
To understand why, it’s necessary to rewind the tape to the early 1970s when credit card companies miscalculated the number of cardholders who would pay their balance promptly. These companies only make real money when cardholders roll over their debt from one month to the next. When cardholders pay on time, profits are severely reduced.
To enhance profits, credit card companies began to seek out young people because they correctly realized that this group typically do not pay their bills on time. These riskier consumers, therefore, incurred high interest rates as they rolled over their debt from one month to another. So-called kiddie credit cards began to be issued that did not require a parental co-signer. And the strategy has been enormously successful. More than half of the nation’s college students owned a credit card, even though they have no credit history. The Los Angeles Times reported that marketing credit cards to high school students was growing.
The only bright note is the Credit Card Accountability Responsibility and Disclosure Act that was passed in 2009. It gave some protection to consumers under the age of 21 by banning aggressive marketing to college students and required that credit card companies give consumers clear warnings about now much interest would be charged if they paid only their minimum monthly payment.
The problem is that young people today want instant gratification. As a result, I doubt that CARD will do much to change matters.
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