The credit card reform act, in a nutshell, simply states that anyone under the age of 18 cannot get a credit card unless someone over the age of 21 co-signs with them. The Credit Card Reform Act went into effect in February of 2010. Since then, studies are now showing that approximately 17% of consumers between the ages of 18 to 29 did not add any credit card debt by the end of 2012. That is according to FICO, the popular credit card score provider for most consumers.
Suffice it to say that the law appears to be working as designed. The concept behind the Credit Card Reform Act was to keep credit card companies from “preying” upon younger consumers (those under the age of 18). The Act requires that anyone under the age of 21 must have a co-signer or to earn enough income to be able to make full payments on their expenditures each month. As a result, FICO states that credit card debt has now declined by almost 1/3 for this age group.
Some of the other advantages of the ACT include:
- · Credit card companies are unable to increase interest rates on the existing credit card balances of the consumer unless the borrower is at least 60 days late on the account.
- · Credit card companies are unable to charge additional payment penalties for accepting payments by mail, phone, electronic transfer, or any other means, unless the payment is processed through an expedited service processor.
- · Credit card companies are unable to raise interest rates on new credit card accounts during the first year the account is opened.
- · Credit card companies now have to include a minimum payment disclosure that explains how long it will take to pay off the existing balance the consumer owes. In addition, these companies will have to provide minimum payment details and the total cost in interest to pay off the existing balance within 3 years (36 months).
· Double cycle billing is now illegal. This was a common practice whereby the credit card companies would use the previous month’s balance to calculate interest charges for the current month.
As a result of these new changes, FICO scores are actually increasing for this younger generation (below age 30) as these consumers have come to rely more on debit cards and prepaid credit cards, than the traditional credit card method.
Another reason scores are increasing is this younger generation has not gone out and dove into the housing market. As a result, they do not have large mortgages that the older generation before them have done. Many are postponing marriage until later years or renting first before taking on a large mortgage. In fact, those that do go out and buy are finding interest rates at their lowest in our country’s history, enabling them to afford the mortgage payment they have incurred.
The only increase in debt among this generation has been the increase in student loan debt, as colleges and universities across the country have increased tuition rates across the board for past 10-15 years at double-digit rates, far exceeding the Cost of Living index and a recession.
Conversely consumers over the age of forty have taken on more debt than they did in 2005. As a result, their FICO scores have fallen almost 2%. For those between the age of 50 through 59 the increase in only 2% and for those over the age of 60 the increase is approximately 4%, as the older generation is still trying to dig out from under a housing bust, a stock market bust, a recession and probably another one right now.
Therefore, the Credit Card Reform Act has truly helped younger Americans better understand the dangers of high credit card debt, while leaning to become fiscal conservative at the same time. If you have any questions about this law or anything else pertaining to debt reduction, please feel free to call us toll free at 800-890-6658.