February 17, 2010
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News: Credit Card Reform; What's A Student To Do?
The Credit CARD Act 2009 will soon be in effect and is expected to have a significant impact on the distribution of credit cards to individuals under the age of 21. Not only will the new law restrict lenders in raising interest rates and implement stiffer guidelines in communicating to the consumer, the act also prohibits lenders from issuing credit cards to young adults under 21 except in certain circumstances. Parents or guardians must now co-sign for their young adult if they are willing to take the risk. If the student defaults in payment, the law holds the co-signer responsible for the debt. Another condition which would allow the lender to issue a credit card to an individual under 21 would be if he/she could prove that they have the means to pay the debt back.
If the proper conditions are met and an individual under the age of 21 is issued a credit card, the lender must receive written permission from the co-signer if there is a request to raise the credit limit. Additionally, lenders will be prohibited from marketing their cards on the college or university campus. The popular practice of trying to lure students into signing up for a credit card by offering free gifts, will also be prohibited. Some experts say that students who have no parent who qualifies to be a co-signer will most likely be hurt by the new law.
Despite the fact that the new law will make it more difficult for a student to acquire a credit card, there are alternatives. Parents can eliminate the risk by getting their student a debit card. A debit card will assist the student in learning how to manage finances while giving the parent or guardian a sense of security in knowing he/she will not be able to bury themselves in debt. Another option is a prepaid card. Parents or guardians can load the prepaid card from time to time while still have the capabilities of keeping an eye on their students spending.