Specific protections for young adults from credit cards
Getting the facts gives young adults greater control of credit cards.
Do you have a young person that will be heading off to college this fall or a young adult that is currently attending college? Building a positive credit history is an important part of successfully navigating the financial world as an adult. The Credit CARD Act of 2009 (a.k.a. Public Law 111-24) was signed into law by President Barack Obama. It amends the Truth In Lending Act, the Federal Trade Commission Act and the Electronic Funds Transfer Act.
A credit card cannot be issued to a consumer under the age of 21, unless he or she has submitted a written application to the card issuer that meets the following requirements:
- The signature of a cosigner, including the parent, legal guardian, spouse or any other individual who has attained the age of 21 who has the means to repay debts incurred by the consumer in connection with the account.
- Financial information that documents the person under the age of 21 has the ability to independently repay the debt.
- If a parent or other adult has cosigned a credit card for someone under the age of 21, the card issuer may not increase the credit limit on the account without the cosigner’s written approval.
- The maximum amount that a young adult, for whom no one else co-signs, can charge on one credit card is limited to the greater of $500 or 20% of the student’s annual gross income in the most recently completed calendar year. In addition, the total limit for all credit cards held by a young adult is 30% of the student’s annual gross income in the most recently completed calendar year.
- Prescreened credit offers may not be sent to those under the age of 21 unless they have opted in with the credit reporting agencies to receive such offers.
- Colleges and universities must publicly disclose contracts or agreements made with a card issuer or creditor for the purpose of marketing a credit card.
- Credit card companies are prohibited from offering free merchandise to college students in exchange for applying for a credit card. This rule is in effect on or near a college campus and at college-sponsored activities such as concerts, homecoming rallies and athletic events.
- Colleges and universities are encouraged to limit on-campus marketing of credit cards and offer credit card and debt education sessions as a regular part of new student orientation.
For young adults, the new rules do make it more difficult to obtain credit cards than in the past and the amount that can be charged is limited as well. It remains to be seen if these restrictions on credit cards will have positive long-term effects on the credit history of young adult consumers.