In less than two weeks, no one under 21 will be able to apply for a credit card under their own name unless they can provide proof of income.
The new rule is part of federal legislation designed to prevent young people from getting into debt. The changes could have a significant effect on college students’ relationship with credit.
Under the Credit Card Accountability, Responsibility, and Disclosure Act — signed by the president in May — companies will be prohibited from issuing cards to many students under 21 without a cosigner 21 or older. The previous age was 18.
The Credit CARD Act
Changes to the act that will affect those under age 21 starting Feb. 22 include:
1. Limited credit: Students under 21 will not be able to obtain credit cards in their own names without proof of income. If a student wants a card, he or she must have someone 21 or older act as a cosigner.
2. Interest rate protection: The Credit CARD act limits when credit card companies can retroactively increase rates.
3. Over-limit fee opt-in: Consumers must agree to pay opt-in fees to make purchases beyond their credit limits.
4. Limited upfront fees: Upfront fees will be capped at 25 percent of the cardholder’s credit limit during the first year of a new account.
5. Fixed due dates for bills: Monthly payments must be due on the same day each month. Payments won’t be considered late unless they are received after 5 p.m. on the due date.
It also bars credit card companies from increasing rates on existing balances and limits initial fees on new accounts.
“Students can expect to see fewer card offers in the future,” said Ben Woolsey, director of marketing and consumer research for CreditCards.com, in an e-mail. The Web site allows consumers to compare card offers.
Companies also will no longer be allowed to solicit younger adults by mailing them credit cards or attracting them with freebies on college campuses, Woolsey said.
Lawmakers hope that the legislation will make it harder for students to spend more than they have.
“Lack of capital and credit card debt that cannot be paid off before graduation are probably the biggest problems,” Woolsey said.
Others include exceeding the credit limit and late payments.
Wachovia is making changes to all of its consumer credit card accounts this month to comply with the new law, said Christine Shaw, corporate communications manager for the company, in an e-mail.
But many students say regulations are not the best way to fix credit issues among young people.
Jason Sutton, spokesman for the N.C. Federation of College Republicans and a UNC junior political science major, said the law protects irresponsible people at the expense of those capable of managing their credit.
“What about the people who need a credit card and won’t be able to get one?” he asked.
Allison Chin, a junior economics major from New York, applied for five or six student credit cards online last semester before getting approved for one by Bank of America. She was 20 when she applied for the cards.
“I think it’s really important to have some form of credit upon graduation because it’ll increase your chances of getting approved for leases and loans,” she said.
Chin said she makes a couple of small purchases on her card each month, so she is always able to pay the balance in full.
While she said she understands the reasoning behind the new rules, she thinks they might be a bit restrictive.
“I think having a credit card with a reasonable limit is a great way to learn how to manage one’s finances responsibly,” she said.
“I think it would be more effective for the government to regulate the credit limit and number of credit cards people under 21 are allowed to have, rather than requiring cosigners.”
Students under 21 can still apply for a card without a cosigner if they do so before the law takes effect.
Contact the State & National Editor at stntdesk@unc.edu.
