Money Smart Kids
When Teens Get Credit Cards
There's nothing to stop a company from issuing a credit card to a minor.
By Janet Bodnar, Editor, Kiplinger's Personal Finance
September 19, 2002
I talk to a large number of high school business and consumer-education classes. Two to three students in each class already have their own credit cards, in their own name and without the signature or permission of a parent. None of them is over 18.
How can the credit card companies do this and not run afoul of federal regulations about contract age? Can the credit card companies go after the parents if the teens can't (or won't) pay?
Let's start by clearing up a couple of misconceptions. First, there's no federal age restriction on contracts, such as credit card agreements. Each state has its own rules, which generally say that a person can't enter into a legal contract until he or she reaches the age of majority, which is typically 18.
Strictly speaking, then, credit card companies aren't prohibited from issuing a credit card to a minor. But they have no legal standing to collect on the debt if the teenager can't -- or won't -- pay.
"The burden is on the credit card company," says Nancy Judy of Myvesta, a financial-counseling organization. "It's the company's responsibility to make sure it has signed a contract with a responsible adult."
Furthermore, a creditor can't come after a child's parent to collect on the debt. In the event of a dispute, an issuer "wouldn't hold parents or children responsible," says a spokesman for Capital One, a major credit card issuer. "The bank would close the account and restrict further activity." So it's in a bank's interest not to issue a card to someone younger than 18.
How is it that teenagers occasionally do get cards? Often kids get their first credit cards from local stores or retail chains that cater to teens and ignore the risk, or aren't aware that they have no legal way to collect on a debt if there's a problem. Maybe they're willing to take their chances -- or figure they can bully parents into paying up if kids don't.
If a child is solicited by a national card issuer such as Visa or MasterCard, it's often the case that the child's name somehow found its way onto an adult mailing list. Most national issuers that actively solicit the teen market require that a parent co-sign an application for a child.
Of course, once teens turn 18, they're prime targets for credit card issuers and can get a card without a parent's signature or knowledge.