Aug. 14, 2007

When college students head back to campus in the next few weeks, they will be bombarded with credit card offers. Too many of those students will get into serious debt that will haunt them for years to come.

To make sure that students understand the perils of plastic, County Executive Andy Spano today launched an educational campaign that will be conducted at colleges throughout Westchester.  Joined by Dr. Joseph Hankin,  president of Westchester Community College, Spano announced the distribution of the county Department of Consumer Protection’s redesigned brochure Learn the Perils of Credit Cards.

In a separate but related matter, Spano has written to Sens. Hillary Clinton and Chuck Schumer urging Congress to stop credit card companies from continuing various anti-consumer practices that affect credit card holders of all ages. General tips on how to pick a credit card.

“It is time for students to take more responsibility for their own financial actions and it is time for Congress to reform this industry,” said Spano. “Many students are getting too much credit  and face long-term, life-altering consequences for over-extending themselves. Over the last several years, things have gotten worse, in part because of the absolutely unconscionable practices of some credit card companies and banks in how they assess interest.”

Said Dr. Hankin, “Credit cards are an indisputable fact of college life, and there are good reasons to have one. With this brochure and other forms of education, we can help young people enjoy the benefits of credit without digging themselves a credit hole.”

STUDENTS AND  CREDIT CARD USAGE AND RECOMMENDATIONS
The statistics on student credit card usage are eye-opening. According to a study by Nellie Mae, a private agency that provides loans to undergraduate and graduate students:

 

• 76 percent of undergraduates have a credit card, but only 21 percent pay their bill in full each month.
• The average balance on a student credit card is $2,169, and 25 percent of students owe $3,000 or more. 
• Credit card usage swells as students progress through school:  91 percent of final year students have a credit card compared with 42 percent of freshman, and 56 percent of final year students have four or more cards while only 15 percent of freshman carry that many.
• Final-year students carry an average balance of $2,864 while freshman carry an average balance of $1,585.
• About 24 percent of students use credit cards to pay for tuition, even though much less expensive forms of credit are available.

Starting life after graduation with thousands of dollars in high-interest credit card debt can pose a serious financial burden. Even worse, students can find themselves with a bad credit rating that will hinder their efforts to obtain a home or car loan, or cause them to pay much higher interest rates. A bad credit rating may even make it difficult to get a job, as some employers run credit checks.

Among the recommendations made by the county are:

 

• Shop around for the card with the best interest rate.
• Beware of low “teaser” rates that escalate rapidly after a few months.
• Avoid paying an annual fee.
• Request a low credit limit – enough to cover emergencies, but not enough to get overextended.
• One card is enough.
• Pay in full if possible and always pay on time.
• Don’t max out on a card.
• Don’t use the card for cash advances – fees and interest rates are high.
• Understand the consequences of falling into debt - - lower credit rating; higher interest rates; difficulty opening checking accounts, renting or buying a car,  purchasing a home, and getting another credit card.

RECOMMENDATIONS FOR CHANGES IN THE LAW
In letters sent to Sens. Clinton and Schumer, Spano is urging passage of Senate Bill 1395 titled “Stop Unfair Practices in Credit Card Act.” The bill has been referred to the Banking, Housing and Urban Affairs Committee, on which Schumer serves. This bill is intended to ban unfair credit card practices and to protect consumers who seek to pay off their debts in good faith.

 

• It would stop credit card companies from charging interest on debt that is paid on time and would cut down on abusive fees, including late fees, over-the-limit fees, and fees to pay a bill.
• It would also prohibit the charging of interest on fees and would establish guidelines on interest rate increases, including a cap on penalty interest rate hikes at no more than seven percent. The law would require that increased interest rates apply only to future credit card debt, and not to debt already incurred.

“Unfair practices by credit card companies have been the source of complaints to our Department of Consumer Protection,” Spano said. “In one such complaint, the consumer conceded that while she was regularly near the maximum limit on her credit card, she was never delinquent in payment. The consumer claims that she once exceeded her limit by 14 cents and the credit card company increased her interest rate from 8.99 percent to 27.99 percent.”