BY FELICE BAKER – MEDILL NEWS SERVICE
Many of us remember the first promotional credit card that arrived in the mail months after our 18th birthdays. These will be history by February of 2010.
The third of five titles comprising The Credit Card Accountability, Responsibility and Disclosure Act of 2009 – which was passed by Congress and signed into law Friday with several provisions to help protect consumers from unpredictable rate hikes and penalties – is entirely dedicated to protecting young consumers from credit traps.
Credit cards cannot be issued to those under the age of 21 without submission of a written application. The application must either provide proof of sufficient income earned by the young adult, or proof of sufficient income earned by a co-signer above the age of 21. Credit offers to those under the age of 21 are also prohibited unless the consumer consents to the courting.
Two other provisions prohibit increases in the amount of credit offered to those under 21 just because they have co-signers, and require universities to publicly disclose marketing contracts with credit card companies.
Finally, the new credit card act protects gift card purchasers from penalties, such as fees incurred when intended gift card redeemers delay their use of the card. Now fees will only be charged if the gift card is not used within twelve months of its purchase.
Congress clearly wanted the law to provide a guiding hand for young adults new to the world of independent, non-cash purchases and vulnerable to the temptation to spend above their means.
However, Adolfo Laurenti, deputy chief economist at Mesirow Financial, thinks the credit card industry should have done more to provide financial education for its young consumers before Congress had to intervene.
“I have always thought that there was a lack of proper financial education for young credit card users,” said Laurenti in a phone interview. “However, I am disappointed that the credit card industry – which is best-suited and equipped to teach adults under the age of 21 how to use credit optimally – chose to short-sightedly ignore this basic consumer need. Government interaction in these matters sometimes creates unwanted backlash.”
Laurenti fears that profit-motivated credit card companies will respond to the new provisions for consumers under the age of 21 with hostility, by offering young consumers fewer promotional perks.
“There may be some instances in which a young person ought to be rewarded for their level of maturity when it comes to handling finances,” said Laurenti. “Instead this young man or woman only has access to the same rigorous application process and restricted line of credit available to his peers.”