Young People: New Credit Card Laws

June is a month of celebration for many young people finishing high school and pursuing life’s endeavors. Parents, you need to know some changes that could influence your young adult’s lives concerning credit card debt.

Credit card debt has become an increasing challenge to young people. College seniors have average balances north of $4,000, while freshmen average over $2,000. However, the distribution of credit cards like candy may come to a sudden halt on college campuses. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act prohibits credit card issuers from extending credit to persons under 21 years of age, except under one of two conditions:

• The card issuer has to verify that the young adult has the independent financial means to repay any credit that has been extended.
• A young adult can get a credit card if the parent, legal guardian or an individual over 21 agrees to sign a credit application as a co-signer. The law says that the applicant and co-signer must be jointly liable for the charges.

Other New Changes
Issuers cannot entice college students into applying for credit cards by offering them t-shirts or teddy bears. Gifts to college students for filling out credit card applications are not allowed.

Issuers cannot send pre-screened credit card offers to people under 21 unless the consumer has consented to receive these offers. Also, the issuer cannot raise the limit on credit cards to people under 21 unless the co-signer gives written permission.

Lessons from These Changes:

• Remember, if you co-sign, you are responsible for the total debt, and late payments or default can impact the co-signer’s credit record as well as the young person’s record.
• If the college or university offers a personal finance class taught by a reputable professor, it should be a mandatory class.
• Let’s get our high schools and home schools in America to make personal finance a required class, as well.
• Will young people find another avenue, perhaps debit cards? Responsible use of debt is not an option, but a requirement.

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.