At age 18, Americans become eligible to vote, enter the military, serve on a jury and marry without parental consent, in most states. But starting in February 2010, there will be one less opportunity with that milestone: getting a credit card.
On May 22, President Barack Obama signed into law the Credit Card Accountability, Responsibility and Disclosure Act of 2009. The bill restricts credit card issuers from raising interest rates without warning, penalizing customers who pay on time and levying excessive fees.
There's also a provision that specifically concerns young people: Under the new law, no one under age 21 can get a credit card unless a parent, guardian or spouse is willing to co-sign or unless the young adult has proof of sufficient income to cover the credit obligations.
Speaking on the Senate floor in May, Sen. Barbara Mikulski, D-Md., said the bill aims to prevent credit card companies from "targeting college kids to weigh them down with debt before they even graduate."
- Video: The new credit card rules
In April, student loan corporation Sallie Mae released a national study that examines the use of credit by undergraduates. The study found that in 2004, 76% of undergrads had at least one credit card. Today, 84% do. The average amount students say they charged to their credit cards to pay for education expenses (such as school supplies) has increased from $942 in 2004 to $2,200 currently. What's more, 82% of undergrads with cards report that they do not pay off their full balances every month, and the median debt among this group is $1,645, compared with $946 in 2004.
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A solution or just different problems?
Not surprisingly, there has been plenty of debate over whether or not the bill's provisions will actually help young Americans. Here are some of the thorny issues raised by the new law:Layer of protection? One of the most contentious issues is the role of the co-signer. In the eyes of the bill's supporters, the requirement that a parent must co-sign is exactly the kind of help young Americans need to start making better financial choices.
"What I like (about the bill) is that it will protect the uneducated -- the naive who have not been exposed to the basics of good use of credit," says Mary Ann Campbell, a certified financial planner who teaches a consumer finance course at the University of Central Arkansas.
Campbell points out that credit card companies will issue cards only to those with parents or guardians with good credit histories, so there will be an additional layer of authority to make sure inexperience does not lead to massive debt for young adults who have a parent or guardian co-sign.
Other experts aren't so sure that the bill will really encourage more responsibility. "There's no evidence that someone manages credit cards better at 21 than 18," says John Ulzheimer, the president of consumer education for Credit.com.
Others say adding that extra layer of protection can only help, given the high level of student debt in the country. "I'm not sure that it solves the problem, but at least it puts an adult in the loop," says Dan Danford, the chief executive of the Family Investment Center in St. Louis.
The bottom line: Even if they are financially savvy, younger Americans will have to wait until their 21st birthdays to get a credit card unless they have a parent willing to co-sign or they make sufficient income to meet the requirements.
Continued: The drawbacks to waiting
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