Lisa Fan, 16, Woodbury, Minnesota|
If you are a teenager and are considering applying for a credit card, you should think fast, because it won’t be so easy after February 2010.
A new credit card law was passed in the House and Senate and signed by President Obama last spring. This new law, called the Credit Card Accountability and Responsibility Disclosure Act of 2009, will take effect in February. It covers many credit card issues, and some parts of the law are geared only toward teens.
According to govtrack.us, this new law states that no one under the age of 21 can get a credit card without a co-signer or can prove they have enough income to pay off the debt themselves. A co-signer is a parent or other adult who will sign on to a credit card with you and be liable for charges that you don’t pay.
Rep. Keith Ellison, D-Minn., was one of the bill’s chief authors and strongly supports the changes.
“I think that financial management is a big undertaking and I don’t think we should allow young people to get themselves mired in a lot of debt before they’re really old enough to understand their own financial future,” Ellison said. “I want the kids in our society to have a good start on adulthood and I don’t want them walking into mounds of debt. In my opinion, it was a way to look out for kids and help kids to be successful financially.”
This new law impacts teens in a big way, and will try to keep credit cards in the hands of responsible teens.
“A young person can’t get a credit card now without a parent or guardian signing off on it,” said Chris Farrell, Marketplace economics editor for American Public Radio. “I think that’s a good thing and it’s one of the reasons that I support [the law]. There’s just been, particularly on college campuses, too much marketing of credit cards. It’s so easy to get in trouble and to graduate with lots of student loans and also credit card debt.”
One option under the new law for teens with savings is a secured credit card. Basically, a secured card enables the consumer to open their account with a security deposit equal to their credit limit. For example, if a consumer wants a credit limit of $500, they put up a $500 security deposit to cover their debt in case they are unable to pay their bill. Other than this security deposit, the secure credit card acts just like a regular credit card. If the consumer defaults, the credit card company simply takes the security deposit.
Teens aren’t the only ones who will be affected by this new legislation. The law will also have an impact on credit card companies and banks that issue credit cards, although its effects on these companies are not yet clear.
“What is unclear is what [the law] means for the fees that the credit card companies charge,” Farrell said.
Banks have been raising interest rates and are threatening to revive annual fees, curtail cash-back and other rewards programs, and charge interest immediately on a purchase to make up for loss of revenue caused by the restrictions of the new law, according to the New York Times.
“My own guess is that it’s better for the consumer, and the credit card companies will have less profit, and all their threats to raise fees and to raise interest rates will turn out not to be true,” Farrell said.
John Hall, a spokesman for the American Bankers’ Association, which opposed the new law, thinks the new law could hurt some consumers.
“I think that the law will mean there will be less credit available, so fewer people will have access to credit and credit will be more expensive for those who do,” he said.
The law could have both positive and negative effects on these companies. They will lose some profits, but it will help them keep credit cards in the hands of responsible custumers.
“The profits of credit card companies from teens are small,” Hall said. “Banks have always recognized that applying for a credit card could be a young person or college student’s first experience with the bank and want it to be the start of a positive lifelong relationship. So they really have an interest in issuing credit cards responsibly so they can ensure ongoing customer service.”
Corinna Rosillo, 17, St. Paul, supports the law. She doesn’t have a credit card herself, nor does she want one. “I think that [teenagers will] abuse [credit cards] that young,” she said. “It’s pretty much having money that you really don’t have… I mean, people completely overuse it. That’s why there’s so much credit card debt, because people think they have the money and they really don’t. It’s like an illusion.”
Amy Zhang, 18, of Woodbury, who attends Northwestern University in Illinois, was a little bit unsure, but decided that the bill was a good idea. “I guess [it is a good idea], because teens are more prone to impulse spending,” she said. “I think you should have the option of getting one at 18 because it’s useful. In my opinion, everyone should have a debit card and have the option of getting a credit card.”
But Hall, on behalf of American Bankers Association, disagrees with the new restrictions. “The profits of credit card companies from teens’ credit cards are small,” he said. “Many teens are on their own and have jobs, so we’ve always felt that they should have access to credit if that want. Many are responsible young adults who can drive a car, go to war for their country, and they should certainly have access to credit cards. Most college students use credit responsibly, but for those that don’t, there are programs in place to help them along.”
Lisa Fan is a sixteen year-old junior at East Ridge High School in Woodbury, Minnesota. She is involved in many activities, such as tennis, mock trial, National Honor Society, and Math Team, and has been playing the piano for 11 years. In her spare time, she enjoys hanging out with friends, listening to music, and shopping. She wrote this article while working for ThreeSixty, a youth journalism program in St. Paul, Minnesota. This and other work by Minnesota teens can be found at ThreeSixty's website, www.threesixtyjournalism.org