The CARD Act could go into effect as soon as December. Although legislators passed the CARD Act with Americans’ best interests in mind, the act also means credit card users may see higher interest rates and fewer rewards. And for anyone under 21, the CARD Act will make it much more difficult to get a credit card.
The CARD Act’s Under-21 Restrictions
The CARD Act stipulates that creditors are prohibited from extending credit to
consumers individuals (I hate the word consumer) unless:
consumerindividual has submitted a written application that meets specified requirements and
- the application is signed by a cosigner, including the parent, legal guardian, spouse, or any other individual who has attained the age of 21 having a means to repay debts incurred by the
consumerborrower in connection with the account.
What I Think
When I first heard about the under 21 provision in the CARD Act, I said “that’s a great idea”. That’s because I started getting into hot water with credit cards way before my 21st birthday. But as I’ve had some time to chew on the idea, I’m starting to think it stinks.
First of all, I’m not a big fan of the government telling citizens what we can and can’t do.
Secondly, the provision may actually be discriminatory under the Equal Credit Opportunity Act, which is in place to
“…promote the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract)”.
(I’ll leave that debate for the lawyers).
Most importantly, I do not believe age is the best predictor of responsibility. Some people can manage credit responsibly, others can’t. Some people are in a position to get credit at 18, 19, or 20. Others are not.
I don’t believe, for example, that a full-time college student with little or no personal income should have several credit cards with $28,000 of available credit (which I had at 19). But how can the government tell a 19-year old who works full-time, has his or her own apartment, and may even be getting married, that he or she can’t get a credit card?
Creditors should make decisions on issuing credit based upon
- a borrower’s prior credit history and
- his or her means to repay the debt.
The first criterion already makes it hard enough for young people to get credit (See: No Credit History? An Uphill Climb to Auto, Home Financing), why not leave it at that? Meanwhile, credit card companies do not even verify applicants’ income. Why not simply require that they do?
I know first hand that credit cards and college is a dangerous situation, but I really hate the idea of taking away other Americans’ ability to make free choices—regardless of age.
If you’re under 21, you still have time to apply for a credit card on your own before the CARD Act goes into affect. If you do, just be honest with yourself about why you’re getting it. If you’re going to use it responsibly to build credit, great. If you have dreams of financing a trip to Cancun and paying it off after you graduate, take the advice of somebody who made that mistake not so long ago: Don’t.
What do you think? Are the restrictions on issuing credit cards to people under 21 a good idea? More importantly, are they fair? Are they legal?