New Law Restricts Credit Card Issuance to Youths

Credit card issuers have been targeting college students for years – setting up tables on college campuses and offering everything from teddy bears to pizza coupons to entice them to apply for a card.

Often, in their enthusiasm to obtain the “free” gift, students have applied for cards without reading the fine print. Thus, along with their new cards they got a first statement – one showing that they owed for a variety of fees. This could include an annual fee, an application fee, and possibly even a monthly access fee. If immediate payment of those fees wasn’t in the budget, the account immediately began gathering interest charges at a high rate.

Thus, these aggressive card issuer tactics have been helping those students leave college and enter the workforce with a debt that can seem staggering, especially when added to student loans for tuition.

This is about to change, due to the new Credit Cardholder’s Bill of Rights of 2009.

Once the law goes into effect, students will need two things to even be approved for a credit card:
• Adequate income and/or a co-signer
• Completion of a certified financial literacy course.

Credit limits will also be limited for students who do not have a co-signer. A student will be able to get a card which is the greater of $500 or 20% of their annual gross income. The total amount of credit extended from all of their credit cards cannot exceed 30% of their annual gross income for the most recently completed calendar years.

Creditors will be prohibited from opening an account for any student who does not have a verifiable annual gross income, or who already has an account with that creditor or its affiliates.

Your high school student will also be prevented from getting a card. The new law prohibits issuance of a credit card to any individual under the age of 18, unless a parent or legal guardian is designated as the primary account holder. (This does not apply if the youth has been emancipated under state law.)

These new regulations are, of course, designed to protect students by preventing them from beginning their financial lives with an overload of debt. But financial analysts fear that this program, like so many others that appear beneficial at first glance, may backfire.

Students in need of fast money may resort to using Payday lenders or pawn shops – both of which charge interest rates that even the most aggressive credit card issuer might find reprehensible.

Author: Mike Clover your resource for free credit reports, credit cards, loans, and ground breaking credit news

One Response to “New Law Restricts Credit Card Issuance to Youths”

  1. NetDebt says:

    This is a great Law. We need to teach out youth to live below their means and Save.

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