Worst New Trend; Paid Co-Signers

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A few weeks ago, I wrote about how college students were trying being circumvent the new CARD Act rules for credit card holders under 21.    Today, I just saw this article about how college students skirt to get credit cards. Apparently, they are actually paying other people to be co-signers.  This is just a terrible idea on so many levels.

For The Underage Applicant

There is a reason that the CARD Act was created with the restrictions against giving credit to those under 21 without the ability to pay their bills. Giving someone money that they can’t pay back used to be known as loan sharking.   The idea is that you squeeze the borrower, who then goes out to family and friends to pay back the loan.   The mob merely uses violence, while your credit card company will use collection agencies and the courts.    So the solution, for some people, to this very wise safegaurd against predatory lending is actually paying someone to co-sign your credit card application?!   Now, you have a loan that you can’t pay back, and you are making another person responsible for your debts.   When collections and the courts goes after that person, who do you think they are going to call first?

Clearly, if you do not have a means to pay back your debts, you shouldn’t incur them in the first place.  Otherwise if you have to have a credit card, and you really do have a friend or family member who is prepared to bail you out when you get in over your head, you should ask that person.  Personally, I think co-signing is a bad idea in general for all but married couples.  People who have no income should be happy with a debit card.   If you really desire the protections that a credit card offers over a debit card, perhaps a secured credit is the solution.

What About Person Being Paid To Co-Sign

If anything, this person is the more foolish party.  Sure, they are making a few quick dollars for signing their name.   In return, they are liable for a stranger’s debts forever.   What a deal.    If that person is less than reliable or reputable, they could easily rack up thousands of dollars of charges, interest, and fees that they are responsible for.   As bad as that sounds, the debt may be the least of their problems.   As soon as the card holder misses a payment, their credit will suffer.   This will hurt their ability to get credit cards, car loans, mortgages, and perhaps even a job.   Co-signing a credit card application is very likely to turn out to be the worst decision they have ever made.   Even if you were to be paid more than the entire amount of the possible debt, the potential damage to your credit makes this the worst possible decision you could ever make.

I don

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3 Responses to “Worst New Trend; Paid Co-Signers”

  1. drhoenikker Says:

    Well, bad laws usually result in bad consequences. Amazing how little controversy there was over under-21 discrimination in CARD.

  2. Jason Steele Says:

    I have to disagree. By that logic, any law that can be circumvented is a bad law. I also do not believe that requiring those under 21 to prove they can pay back a loan to be discrimination. It is surprising that any bank offered loans to people without means to pay them back, unless you understand the concept of predatory lending.

  3. drhoenikker Says:

    It is indeed surprising that any bank would offer loans to people without means to pay them back, especially unsecured loans. Even if it is true, there is still no reason to treat under-21s differently. If you believe that banks are engaged in self-destructive behaviour and must be saved by the regulation, the regulation must extend to everybody. (I honestly do not know if you believe that or not.)

    As far as predatory lending is concerned: I understand that there are unscrupulous financial institutions that hide obviously unfair terms from borrowers, no doubt about that. 90% of CARD is addressing practices that are borderline theft: double-cycle billing, over-the-limit fees, etc. Nobody (well, definitely not me) could argue that those should not be outlawed. What I fail to understand is how lending becomes predatory depending on the age of the borrower.

    A 20-year old is likely to make worse decisions than a 40-year old. We can either continue to treat under-21s (why not under-25s?) as babies, or decide once and for all that 18-year olds are adults. Yes, they are going to make mistakes, but they are old enough to face consequences. Just like they are old enough to face consequences of joining the army, voting, or engaging in just about any financial transaction that does not require a credit card.

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