Students, credit cards and the fine print
By Ron Hatfield, WVU Extension Financial Management Specialist
On Feb. 22, 2010, credit cards will be a whole new ballgame for the under-21 set. That’s the date that major provisions of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, also known as the Credit CARD Act, will go into effect.
Signed into law on May 22, 2009, the act mandates a number of reforms for the credit card industry, such as limiting when banks and other issuers can increase annual percentage rates (APRs) and giving cardholders more time to pay their monthly credit card bills.
The law also includes several measures aimed at protecting young consumers and college students, who until now have been flooded with offers of incentives for easy credit. Young adults new to college campuses are extremely vulnerable to these practices.
So what changes can students expect in February? Here’s a breakdown:
- Higher barriers to credit approval. The days when jobless students could get credit cards without Mom and Dad’s approval will soon be over. Student applicants under 21 will now be required to have co-signers, such as parents or other adults over the age of 21, who will take on joint liability for any card debts that are incurred. If young adults want to apply independently, they will have to show evidence that they can repay the credit card charges on their own. Credit card companies will need some kind of proof of income or employment from the student. In addition, an under-21 cardholder who has a co-signer won’t be able to authorize credit limit increases on the account without the co-signer’s permission.
- No more freebies. Currently, some credit card companies offer students token gifts, pizza or free meals just for applying. But the Credit CARD Act will outlaw this practice at application sites on or near college campuses.
- Fewer pre-screened offers. Under the new law, credit reporting agencies, such as Experian, Equifax and TransUnion, cannot provide the credit reports of under-21 consumers to credit card companies unless the consumer specifically requests that they do so. This will keep young people from receiving those preapproved offers for student credit cards in the mail.
- More transparency about college affinity card programs. Starting in February, colleges and universities, as well as alumni organizations, will have to annually disclose the terms of any marketing or promotional agreements they make with credit card companies. Schools often receive payments or a percentage of proceeds from credit cards issued as part of so-called affinity card programs, which offer alumni and students credit cards emblazoned with the school logo or mascot. The disclosures must clearly state how much money the school has made from the cards that year. Credit card issuers also must file annual reports with the Federal Reserve Board detailing all marketing, promotional or business agreements with colleges and universities, alumni associations and school-related foundations.
- Recommendations to colleges and universities. The law also urges colleges and universities to adopt policies that restrict credit card marketing on their campuses, including requiring advance notice of when they will be on campus and limiting the locations of marketing activities. The law also encourages the colleges to require credit and debt management sessions as a routine part of new student orientation programs. Recognizing the potential for abuse of students, many schools have adopted such policies over the past several years.
On Sept. 29 the Federal Reserve issued final guidelines clarifying some aspects of the new college credit card provisions. Among the questions answered: “Near” campus—where card marketing is restricted—means within 1,000 feet.
It may also prevent students from falling into the trap of running up a balance on credit cards to buy groceries, plane tickets, nights out with friends and other items. Then, several years later, they are still trying to pay off the debt.
WVU Extension Service has offices in all 55 West Virginia counties, where our county agents are trusted sources for reliable, practical information. WVU Extension Service faculty and staff provide West Virginia citizens with access to the University’s research-based programs in health, nutrition, safety, agriculture, finances and 4-H and youth development.
For more information on WVU Extension Service, visit www.ext.wvu.edu, or call 304-293-5691.
This article was complied using information from the following sources: