I wonder sometimes if policymakers in Washington D.C. are really thinking things through. Case in point: the Credit Card Accountability, Responsibility and Disclosure Act. This consumer-friendly law was passed in 2009 to rein in perceived abuses by credit card issuers. This year, however, the law was changed to make it easier for lenders to issue credit to consumers who are 21 and older – even though they still may not have an income of their own.
The change in the CARD Act hinges on what I think is a faulty idea that the older you are, the better you get at paying your bills.
The original rule prevented card issuers from granting credit to anyone without proof of “individual ability to pay.” It was intended to protect college students and other consumers who regularly fell into the trap of borrowing too much money without the ability to pay it back. The rule also prevented a different population from accessing credit, however: stay-at-home spouses and partners without individual income. Under the old rule, they also couldn't get cards in their own names.
The new rule corrects for that oversight. Card issuers are now able to consider other sources of income for individuals 21 and older who apply for cards in their own names. As long as the card issuer believes the consumer has a reasonable expectation of access to the income, a card can be issued to the consumer.
Let me suggest that age is not the issue. Just because someone has reached the age of 21 does not mean the person has the financial acumen to realize what is required to successfully use an open-ended credit vehicle such as a credit card. I should know. I live in a neighborhood that is near a major university, and I can assure you that, based on the number of alcohol-fueled parties taking place most weekends, a lot of people age 21 (the local drinking age) or older are still in college.
Instead of basing the rule change on age, I'd suggest focusing it on occupation. If your occupation is to be a student, the old rule should apply. If your occupation is say, homemaker, then it should not.
And, regardless of age, policymakers should consider requiring people to take a basic financial quiz as part of the application process for a credit card. While I agree that people should not be denied access to credit without reason, I also believe understanding how to use increasingly complex and powerful credit products wisely is not a genetically inherited trait. Why set someone up for potential failure, when delivering basic financial education on how to manage credit could help prevent it?
What do you think?