Andrew Schwartz on the Infancy Rule in the Credit CARD Act

Andrew A. Schwartz

 of Colorado has written Old Enough to Fight, Old Enough to Swipe: A Critique of the Infancy Rule in the Federal Credit Card Act, 2 Utah Law Revies 407 (2011).  Here's the abstract:

In the 1960s and 1970s, American society came to the considered conclusion that if eighteen-year-olds can be drafted to fight and possibly die for their country, they should be treated as adults under the law. Thus, in 1971, the Twenty-Sixth Amendment to the United States Constitution, which lowered the voting age to eighteen from twenty one, was proposed and ratified in just three months, making it the fastest amendment in American history. The minimum age for federal and state jury service was also lowered to eighteen from twenty one. And, with regard to contract law, every state passed legislation reducing the age of contractual capacity to eighteen. These changes overrode the centuries-old common law rule that one becomes an adult, in the eyes of the law, at age twenty-one, this being premised on the then-relevant custom that Englishmen became eligible for knighthood at that age. Despite the fact that all of these reforms remain in place, the federal “Credit CARD Act of 2009” established twenty-one as the minimum age to contract for a credit card.

This Article criticizes this “infancy rule” of the CARD Act, found in section 301, in two ways. First, in the late twentieth century, we decided that eighteen-year-olds really are adults that deserve to be treated with dignity by the law, and this view has not changed. This basic principle was the driving force behind the Twenty-Sixth Amendment to the United States Constitution, which in 1971 lowered the minimum age to vote to eighteen, as well as state and federal statutes that lowered the age to serve on a jury to eighteen, not to mention the state statutes lowering the age of contractual capacity to eighteen. In declaring all those under twenty one to be infants, section 301 runs badly afoul of this broad societal consensus, rolls back the clock to medieval times, and undermines the dignity of eighteen-year-olds.

Second, separate and apart from the harm section 301 directly inflicts on young people, the CARD Act’s infancy rule hurts society at large. This is because the state statutory reforms of the 1970s that endowed eighteen-year-olds with the capacity to enter into binding contracts ushered in the new and hugely beneficial phenomenon of youthful entrepreneurship. Young people, aged eighteen to twenty, were now able to obtain credit and found start-up companies, such as Bill Gates, who founded Microsoft at age nineteen, and Mark Zuckerberg, who founded Facebook at the same age. These and other youthful start-ups employ hundreds of thousands of people, and their products and services improve our lives. Under section 301 of the CARD Act, however, they likely never would have been launched. In short, by hampering youthful entrepreneurship, section 301 harms not only the youths themselves, but society as a whole.

Comments

[Michael]

The reference in the paper to Microsoft, Dell and Facebook did not mention whether their founders used credit cards as a financing means or to pay personal expenses in lieu of regular employment that would have distracted them from developing the innovations that led to the companies we now know.

I don't know... I get the argument, but irresponsible use of credit at an early age is harmful. Until the education system focuses the attention of the nations youth on the true cost of credit prior to reaching majority age, 21 works.

Banks lose a 3 year demographic to market debt to young adults. I am sure that ticks them off.
I am sure every profit facet of the alcohol beverage industry would like that 3 year window too.

[Steve Rhode]

I agree. It does not make much sense to me as well. I'm not convinced that waiting three more years will help much either. Few personal finance courses are taught to college ages students. And if they were they'd never take out student loans in the first place. Want to talk about terms that result in financial slavery, look at student loans.

If we wanted to protect 18-21 year olds we'd let them have access to credit but limit the amount of their credit granted. The same impactful and life long lessons can be learned struggling to make payments on a card with a $500 limit and will be less painful than a 21 year old with student loan payments and a $5,000 limit and balance due.

Let people have early access to a credit card with training wheels and give them the teachable moment.