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Credit Card Act: New Rules for Student Credit Cards

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Monday, 15 February 2010

The Credit Card Act of 2009 goes into effect on February 22, 2010. There are a few changes that students should become aware of, as they change the way college student credit cards are regulated.

Many of the new rules in the Act help protect some of the most vulnerable consumers: those under 21. Credit card companies are usually eager to sign up college students despite nonexistent credit histories because it builds brand loyalty, as they will more than likely be a customer for life. Starting February 22, college students will find it much harder to obtain new credit cards.

Essentially the new law requires those under the age of 21 to have a parent or other adult who is at least 21 years old co-sign the credit card, unless the applicant can demonstrate an independent source of funds sufficient to repay any debts incurred with the card.

With the constant increase in the cost of higher education, college students have been using credit cards more than ever, with many using them for school-related purchases like textbooks and tuition. A 2008 survey by Sallie Mae found that 84% of college students had a credit card and of those cardholders 92% used their card for college-related expenses. Upon graduation, the average student graduates with an average credit card debt of more than $4,100.

Over the years, many college students have been "bribed" into signing up for a credit card by receiving free hats, t-shirts, and the like. Universities have also engaged in lucrative contracts with credit card companies by either selling student information, allowing companies to set up credit card kiosks on campus, or directly marketing credit cards to college students and earning a commission for each student signed up. The new law helps curb some of these vulnerabilities.

Highlights of the Credit Card Act of 2009

Title III (Sections 301-305) of the Credit CARD Act covers the protection of young consumers.

  1. Cosigner Required
    Consumers who are under age 21 must either have a cosigner who is at least age 21 or have an independent means of repaying the debt. This applies to credit cards and open-ended consumer credit plans, such as department store cards.
  2. Can't Increase Credit Line without Approval
    No increase may be made in the amount of credit authorized under a credit card account for which a parent, legal guardian, or spouse of the consumer, or any other individual has assumed joint liability for debts incurred by the consumer in connection with the account before the cardholder turns 21, unless that cosigner approves in writing, and assumes joint liability for such increase.
  3. No Unsolicited Credit Card Offers
    The law bans unsolicited prescreened credit card offers to consumers under 21. This prevents credit reporting agencies from selling an underage student's credit report to prospective creditors unless the student chooses to opt-in to such offers.
  4. No more Freebies on Campus
    Credit card issuers are no longer allowed to give away tangible items like t-shirts, hats, and iPods on or near college campuses or at events sponsored by or related to a college in order to get students to apply for a credit card. They can still set up tables on campus where permitted by the college, but they won't be able to use giveaways to entice students.
  5. Disclosure of Marketing Contracts
    Colleges, universities and alumni associations will have to publicly disclose the existence and details of contracts they sign with credit card marketers allowed access to student and alumni contact information.
  6. Educating Young Consumers
    The Act encourages universities to implement credit card and debt education and counseling sessions as part of new student orientation.

The rules apply only to new credit cards. College students who already have an existing credit card will not be affected unless they apply for a new credit card.

The Credit Card Act will also require the credit card company to mail your bill 21 days before it is due, up from the current 14-day requirement. It also limits the ability of the card issuer to raise your interest rate. Your rate on existing balances can not be raised unless you're 60 days late on payment and the credit card company must give a 45-day warning on all future interest rate increases.

While the Credit Card Act of 2009 claims to offer protection for those under 21, it is easy to see why lobbyists from the credit card industry would favor such legislation, as now they can go after the parents/cosigner of students who fail to make their payments. However, we do like the fact that credit card companies are no longer allowed to give away free goods as a way of “bribing” college students to sign up for a credit card on or anywhere near campus.

We also like the fact that credit card companies must warn in advance of future interest rate increases on the account. Therefore, if the cardholder doesn't like the higher rate, they can simply cancel their card and continue to pay off the card at its current interest rate.

If you are under 21, you have until February 22 to apply for a credit card. Those who do so afterwards will need their parents to cosign the application.

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