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Reforming credit card rules

Consumers can applaud the credit card reform bill passed Tuesday by the Senate and likely to pass the House today, but as with any credit contract, they should read the fine print.

The reforms will restrict many abusive, or at least irresponsible practices of the card companies – sudden rate increases, easily obtained cards for no-income college students, hidden fees and charges. Reforms should prompt the card companies to cut back on extending credit to riskier customers, such as those with lower incomes or irregular repayment records. But those customers have been worth their risk because late fees and penalty charges for exceeding credit limits have made up a substantial part of the card companies’ revenues. The new rules will require the companies to provide 45 days notice of rate changes and delay rate increases for 60 days after a customer is delinquent.

“Those that manage their credit well will in some degree subsidize those that have credit problems,” Edward L. Yingling, the chief executive of the American Bankers Association, said in Tuesday’s New York Times. Yingling’s organization has been lobbying Congress for more lenient reforms. In our view it’s a good thing he didn’t get very far.

The Senate reforms, for instance, will require customers who are younger than 21 to prove they can repay the money, or else have a parent of guardian willing to be a co-signer before they can get a credit card. Such reform is necessary because too many young people are getting credit cards that they have neither the maturity nor the income to pay off. A recent survey by the student-loan company Sallie Mae found that half of American college students have four or more credit cards and are carrying an average balance of $3,173. Nearly a third of college students put tuition on their cards, and three-fourths of those carrying a monthly balance that makes them subject to additional fees.

The truth is, nobody ever got into trouble with a credit card they didn’t use. If the reforms cause the companies to tighten down on the perks and tighten up on the eligibility, the effect will be less credit for some, but a greater sense of financial awareness and spending discipline for everybody.

—The Cincinnati Enquirer