Academic journal article Journal of Economics and Economic Education Research

Credit Card Accountability Responsibility and Disclosure Act of 2009: Helpful for 18- to 21-Year-Olds?

Academic journal article Journal of Economics and Economic Education Research

Credit Card Accountability Responsibility and Disclosure Act of 2009: Helpful for 18- to 21-Year-Olds?

Article excerpt


The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CCARD Act) went into effect April 30, 2010 (Library of Congress, 2009). This law, among other provisions, makes it unlawful for financial companies to sign up individuals under age 21 without an adult co-signer, unless the underage individual provides documentation of a means to make sufficient payments. This provision is meant to protect young adults from assuming more debt than they can pay. This study explores whether decisions of college students under age 21 behave differently from older students when offered higher lines of credit. Past research has documented young adults' credit habits and their income growth potential but has shed little light on responses to additional credit access or credit use. This paper examines whether students, under and over the age of 21, would accept additional credit lines and, if so, how these two groups would use it. The survey was conducted shortly before the 2010 law change, shedding light on whether students under age 21 engage in different credit card behavior. This study provides evidence on the usefulness of the CCARD Act. Banks can use this information in marketing to students; and legislators can use this information to better understand younger, less experienced consumers.


Many of the approximately 5.8 million college students throughout the country are repeatedly offered credit cards (Warwick and Mansfield, 2000). They typically are low income producers, but they have discretionary income and expect to earn high incomes in the future. Card issuers anticipate that students will frequently use their cards and carry high outstanding balances (Ericson, 2002).

Psychology literature supports differences between younger and older adults. Arnett (2000) asserts that societal changes at the turn of the 21st century facilitated a psychological stage of development for those age 18 to the late 20s labeled "emerging adulthood." This stage is marked by identity exploration, instability, self-focus and "a sense of possibilities." At the end of this stage, new, often long-lasting relationships are formed. (Arnett, 2000) A borrower obtaining a credit card is about to start a potentially long-lasting relationship that can be beneficial for the borrower and the lender (Fliegel, 2005). Ludvigson (1999) finds that students tend to increase their credit limits throughout the lifecycle. Borrowers without credit cards are not equally able to control their consumption patterns as those with credit. But debt rises significantly and quickly with credit limit increases (Gross and Souleles, 2002; Shubhasis, 2004). Young borrowers face the temptation to spend more than income would justify, incurring high outstanding balances (Silver-Greenberg, 2007). White (2007) suggests that financial pressures dampen rational decision making; borrowers tend to behave as hyperbolic discounters, spending more money with credit cards than their income warrants, and some of their financial decisions are detrimental (Brown and Plache, 2006).

Early in the lifecycle, consumers have lower credit limits but optimistic expectations for income and credit limit growth (Ludvigson, 1999). College students' behavioral patterns change with earning power and potential wealth accumulation over their expected lifecycle, making them attractive customers for credit card companies (Warwick and Mansfield, 2000). Banks increase college students' credit lines gradually when they consistently show financial stability. Maki (2000) finds that increased consumer credit results in higher consumption. But the debt-consumption relationship is difficult to ascertain because credit lines are non-secured, with flexible repayment, not requiring a student to set aside funds or pledge an asset (Ekici and Dunn, 2006).

Ericson (2002) suggests that students' knowledge of credit card features plays a role in their credit card-related decisions. …

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