How the New Credit Card Bill Will Affect Young Spenders

At age 18, Americans become eligible to vote, enter the military, serve on a jury, and marry without parental consent, in most states. But starting in February 2010, there will be one allowance fewer with that milestone: a credit card. On May 22, President Obama signed into law the Credit CARD Act of 2009, a bill that restricts credit card issuers from raising interest rates without warning, penalizing customers who pay on time, and levying excessive fees. There’s also a provision that specifically concerns young people: Under the new law, no one under age 21 can get a credit card unless a parent, guardian, or spouse is willing to cosign or unless the underage person has proof of sufficient income to cover the credit obligations.

Speaking on the floor of the Senate in May, Democratic Sen.Barbara Mikulski of Maryland said the bill aims to prevent credit card companies from “targeting college kids to weigh them down with debt before they even graduate.” In April, student loan corporation Sallie Mae released a national study that examines the use of credit by undergraduates. The study found that in 2004, 76 percent of undergrads had at least one credit card. Today, 84 percent do. The average amount students say they charged to their credit cards to pay for education expenses (such as school supplies) has increased from $942 in 2004 to $2,200 currently. What’s more, 82 percent of undergrads with cards report that they do not pay off their full balances every month, and the median debt among this group is $1,645, compared with $946 in 2004.

Not surprisingly, there has been plenty of debate over whether or not the bill’s provisions will actually help young Americans. Here are some of the thorny issues raised by the new law