Legislation Sets Age Limit for Acquiring Credit Cards
February 25, 2010 • By Amanda Caskey, Contributing Writer
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Anyone Under 21 Needs Co-Signer, Following Credit CARD Act
HARRISONBURG, Va. — A new law aims to prevent people from ruining their credit score and sinking into debt, which is something the college-aged demographic is notorious for.
The Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) went into effect Monday after President Obama signed it into legislation in May 2009.
“This CARD Act is a key part to a number of administrative initiatives to increase consumer protection, particularly in areas where credit is involved,” said Jared Bernstein, senior economic advisor to the Vice President, during a conference call Tuesday with student reporters. “The major reforms of the CARD Act mark a significant turning point in the area of helping to protect consumers from practices that, in the past, have helped get us to this kind of [recession].”
Among the many regulations the law puts on credit card companies, two specifically target the college-aged crowd.
The act states that people under 21 can no longer apply for a credit card without having a co-signer over the age of 21 or must prove they have sufficient income to pay the bills.
However, people may not realize the co-signer then becomes financially responsible for the cardholder, and bad spending habits could be reflected on the co-signer’s credit score. Bernstein said the new act was made for people to understand terms such as these before they get involved, making it consumer-friendly for all.
Those under 21 could also be added to a parent or guardian’s credit card account as an “authorized used,” which helps young adults build credit.
According to a press release from the White House Office of the Press Secretary in May, the act also requires card issuers and universities to “disclose agreements with respect to the marketing or distribution of credit cards to students.”
Credit card companies are no longer allowed to promote credit cards to students through appealing offers, such as giving away free stuff on college campuses.
Universities usually get a cut of the proceeds from credit card companies when they persuade students to open a card on campus. Universities are now required to disclose how much they make and the details of the deal.
Bernstein said there are two reasons why it is particularly unfortunate when young people get in over their heads in credit card debt. First, he said it is harder to get a career started if you are carrying large debt, and second, it will damage your credit score.
Freshman Francesca DiValerio didn’t know about the reform, but she said her parents already made their stance on credit cards clear.
“My parents won’t let me get a credit card, because they think I’ll spend too much money,” DiValerio said. “Also, I am perfectly fine with a debit card, and there’s no real need for [a credit card].”
Not all students feel the goverment should make a rule that affects the decision-making powers of all young adults.
“I think if you are 18 and considered an adult in almost all aspects of life, then you should be allowed to open a credit card and make your own decisions on how to use money,” sophomore Zack Neurohr said. “If you aren’t responsible enough then that’s your problem, not everyone else.”
Pamela Drake, department head of Finance and Business Law in JMU’s College of Business, believes the only way for a person, especially a young person, to be safe is to be financially savvy.
Drake said there is really no reason for college students to use credit cards if they have a debit card. She said that you do not build “good credit” by using a credit card, because it actually hurts your score every time you take out a card; the credit limit works against your credit score.
For students who do use credit cards to pay for expenses such as bills, Drake said they are safe as long as they pay everything off within the grace period as soon as the bill arrives.
“The whole goal of this law is to be more consumer friendly, but it may not be there yet,” Drake said. “I think that we still have a lack of basic economic knowledge among consumers, and as long as people fully don’t understand how financing works and the true cost of it, no matter how simple and plain the language is, you can still get tripped up.”
Some students at JMU agree the new reform will not hinder their spending habits, since they mostly use debit cards from their bank.
“I use my credit card when I go to Walmart to buy necessities, but I use my debit card for everything else,” sophomore Julie Zide said. “I don’t think the new law will have any effect on me, because my parents pay for my credit card.”
Other main points of the reform are the end-to-late fee traps, a ban on retroactive rate increases and contracts containing disclosures that are in “plain sight and plain language.”
Credit card companies are also banned from “double-cycle” billing. This is when issuers use the balance in a previous month to calculate interest charges for the current month, instead of applying excess payments to the highest interest balance first.
Companies who violate these new regulations will be held responsible for breaking federal law. The press release said violators will face significantly higher penalties under the new law but did not say what these penalties would be.
Bernstein said credit card holders can find information on what’s fair and what’s not through a Web site from the Office of the Controller of the Currency. On www.helpwithmybank.gov, people can enter complaints or learn about rules that may have been broken.
Bernstein also explained that most of the rules are straightforward and not loophole-prone. For example, credit card companies cannot raise interest rates in the first year, and they must send notice before they do.
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