What will new credit card rules mean for those under 21?

The new credit card rules signed into law recently herald a great deal of positive changes, but one requirement sticks out as an odd addition. The requirement that individuals under 21 need a parent or guardian to co-sign for a credit card has the capacity to leave many otherwise responsible borrowers without the ability to begin building credit.

In theory, this new rule protects young people from making bad credit decisions, and makes it easier for credit card companies to recoup losses associated with young people who default on their credit cards. But in practice it is odd that legislators believe young individuals can join the armed forces and even gamble but not make responsible credit card decisions.

When the law goes into effect next year, individuals under 21 whose parents won't co-sign for a credit card will have to have proof of the ability to repay the credit card. I spoke with former credit card industry insider and CEO of Cardhub.com, Odysseas Papadimitriou, to find out what kind of proof will be required in 2010.

First and foremost, he pointed out that the current language of the law doesn't define the burden of proof needed, and he expects card issuers to offer various formulas until an industry-wide proof of ability to repay is put into place by issuers or legislative action. As it stands now, expect to see issuers relying on a pay stub income assessment, much like apartments and other businesses verify ability to repay.