Back in 2003, U.S. Bankruptcy Judge Dorothy Eisenberg asked me, as Chair of the Creditors Rights Law Committee of the Suffolk County Bar Association, to become involved in a pilot project called the Credit Abuse Resistance Education program (“CARE”). CARE was the brainchild of Chief Bankruptcy Judge John Ninfo of the Western District of New York.
The program was designed to provide information and advice to students and young adults with regard to the proper use of credit and educate them as to their financial responsibility. The problem was getting into the schools to deliver the message.
School Districts found it difficult to find the time or proper setting for the presentation. Commonly it was the Business Law class or a similar elective that would invite me to speak. The class was never more than twenty students, many of which had no interest in paying attention to the visiting lecturer who spoke like a parent. Some of the students, younger than eighteen, already had a credit card in default.
I have always believed that establishing good credit is essential to a young person’s future plans. So many things depend on your credit bureau or FICO score, including the ability to secure a rental apartment, obtaining preferred lower rates on a personal loan and, eventually, in the mortgage or automotive loan application process. Therefore, having a credit card in the student’s name alone would be preferable to having an “authorized user” card on the parent’s account. In that way it is the student that builds the good credit by wisely using the card and paying it off promptly upon receipt of the Statement of Account.
When high school seniors start to obtain pre-approved applications from credit grantor banks, some of them lose all good sense and see great opportunity to live above their means. When they lose perspective in the “wants vs. needs” decision, they put themselves in jeopardy of falling into a downward spiral of mounting debt. Failing to pay pursuant to the Terms and Conditions of the card agreement can have disastrous consequences to the account holder, including future high finance charges and additional assessments in the event the account is given to a collection agency and/or attorney to collect.
If a parent is a co-applicant on the account, under the law they are held equally as responsible as their children to pay the bill. Parents who make their child an authorized user are in an equal position. As a result, there are parents who will refuse to co-sign for their child on any credit card or make their child an authorized user on their credit card account for that very reason.
The decision as to whether to send a child off to college with a credit card should be carefully examined. A lot depends on the child. There are some parents who decide to send their child off to college with a debit card, not a credit card. The student can’t overspend what she/he doesn’t have and will never incur additional fees or collection costs when they try to. They get used to having plastic in their wallet and educate themselves to exercise self-control in purchases.
Most colleges have at least one ATM on campus. If the student needs more money for books, pizza or an emergency expense, all she/he has to do is ask. The parent can feed the student’s account from their local branch or make an online transfer. In this way, the parent can maintain control over the child’s activities until they believe the student is mature enough to handle the legal responsibilities of a credit card.
For more information, please contact:
Elliott M. Portman, Principal
Portman Law Group, P.C.
1393 Veterans Memorial Highway; Suite 212N
Hauppauge, NY 11788