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For Credit Cards, 21 Is the New 18

October 13, 2009 02:30 PM
by Anita Gutierrez-Folch
The CARD Act of 2009 aims to protect young consumers by limiting credit card marketing on college campuses and setting limitations on those under the age of 21.

New Age Minimum for Credit Cards

Some clauses of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, approved by President Obama in May, are meant to protect young consumers from the dangers of credit card misuse, Pamela Yip reports for The Dallas Morning News.

The second phase of the CARD Act, which will come into effect in February 2010, will “prohibit credit card issuers from lending to anyone under the age of 21 unless he or she has a co-signer or has proof of their ability to make payments,” Yip explains. In addition, the Act will protect students from unsolicited, pre-screened credit card offers and ban credit card companies from enticing students with “any tangible item” on or near college campuses or at college-sponsored events.

Without the possibility of acquiring their own credit card, how can college students build their credit history? As Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, explains to USA Today, students can become authorized users of their parents’ credit cards. Student usage is reported to the credit card bureaus under the student’s own name. This solution helps students build their credit history and also allows parents to better track their child’s spending.

A fact sheet on the CARD Act, released by the White House in May, also noted that the new Act will require that universities and credit card providers “disclose agreements with respect to the marketing or distribution of credit cards to students.” 

Background: Increase in student debt prompts reform

The clause in the new Act requiring anyone under 21 to have parental consent before obtaining a credit card stems from a dramatic increase in student debt across the country. According to a student debt report released in April and quoted by Newsday, student credit card debt is up to $1.8 billion in New York City and on Long Island alone, and most debtors are using credit cards to cover education-related expenditures. By requiring parental consent, legislators are attempting to fix this problem.

Reactions: Credit options for students

Gail Hillebrand, an attorney at Consumers Union, is a strong advocate of the reform, explaining that although it’s good for students to start building their credit history early, getting into debt will also leave a black spot on their record that isn’t easy to remove. “Building credit is a good idea, but a credit mistake stays on your credit report for seven years, and those seven years can really hurt you,” she told USA Today.

New York Sen. Charles Schumer is also in favor of the bill protecting young consumers. “Credit cards should be a leg up for college students, not a leg trap that snares them in unbearable debt,” he told Newsday in April. 

Given that these new provisions won’t take effect until February, however, many worried that the next four months will bring on particularly aggressive marketing campaigns organized by banks and credit card providers, USA Today reports. But Peter Garuccio, spokesman for the American Bankers Association, told The Dallas Morning News that financial institutions were unaware of how the Federal Reserve would choose to implement the new provisions. “The uncertainty around what that was going to look like was enough for people to pull back,” he said.

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