New bureau seeks to improve credit literacy

College students are exposed to many financial products.

By Jasmin James

Published Nov. 2, 2010

Credit cards: although tiny, they can have a detrimental impact on college students’ lives. What most students don't realize is that, although using the card might be simple, it is coupled with complicated processes, high interest rates and credit company jargon.

For college students, the battle is even more complicated, trying to establish credit while also trying to pay for college and live comfortably. Last week, Elizabeth Warren said she wants to change this.

Warren, who serves as Secretary to the President and Special Adviser to the Secretary of Treasury on the Consumer Financial Protection Bureau, recently spoke to college journalists across the country about the bureau and its purpose under U.S. President Barack Obama's administration.

Warren said the new bureau would increase financial literacy and regulate credit card companies so they will have to use more consumer-friendly language.

"Anyone who uses a financial product should know the costs and risks upfront, safeguarding securities and investments," she said.

She said the bureau plans to help Americans in need of more financial literacy and to make contracts more readable.

The new agency will make products, like credit cards, easier to understand and will push to increase the country’s financial literacy. She also elaborated on the four parts of her platform: private lenders, credit cards, overdraft and alternative financial services.

The bureau would enforce best practices, issue new protections and ban rate hikes. Overall, one of the biggest changes would come to the credit industry.

"We'll change the credit card market so the credit goes back to the virtuous role,” she said.

MU economics professor Joseph Haslag said the bureau faces a complicated task.

"It's true, financial contracts have very specific language and that financial institutions are more aware than the typical consumer,” he said. “What strikes me about this bureau is that it's going to alter rules, create lines of reporting and companies will have to reform their policies, costing the borrowers more money."

He went on to explain there are different characteristics associated with certain credit default. College students are vulnerable and might be more likely to misuse the card so interest rates might be higher. Yet, changing a system that has been in place for so long means there will ultimately be a price increase somewhere down the road.

"Government doesn't really have a skin in this game,” he said.

Political science professor James Endersby said the bureau might not be an immediate regulatory success.

"The bureau has great intentions because college-aged students are vulnerable,” he said. “The financial industry makes information muddy rather than clear but the government also can't prevent bad, bad choices. These are definitely problems that can be rectified by these plans but there isn't just one thing that will solve our problems."

Endersby said the bureau is bound to help some people, however, in order to determine the effectiveness, they would have to examine if its helping the majority rather than the minority. He said students are fairly insulated from credit card institutions at MU.

Warren also wants to focus on protecting college students from solicitation by tightening the laws that allow universities to give out information.

“Here at a public university, you’re pretty protected,” Endersby said.