CARD Act swipes in new credit regulations

It may be that the fine print is a little too small or the shoes on the shelf are little too cool or the tuition is a little too high, but whatever the reason, college-age young adults often fall victim to credit trouble.
New regulations that went into effect Monday will make it a little harder for that to happen.
“The new rules are an unprecedented step in my administration’s ongoing efforts to strengthen consumer protections and enact meaningful financial reform,” President Barack Obama said in a statement. “These new rules don’t absolve consumers of their obligation to pay their bills, but they finally level the playing field so that every family and small business using a credit card has the information they need to make responsible financial decisions.”
Provisions in the Credit Card Accountability, Responsibility and Disclosure Act regarding people under the age of 21 now prohibit young people from obtaining a credit card without a co-signer over the age of 21, unless they demonstrate they are financially able to make payments, said Jared Bernstein, senior economic advisor to Vice President Joe Biden, in a conference call.
Submission of financial information that indicates an independent means of repaying debt is required for the latter group, according to the text of the legislation.
“For too long, credit card companies have had free rein to employ misleading and unfair practices that hit consumers with unreasonable costs, often in ways that were shady and very difficult for people to sort out, and they’ve had a specific, tough impact, in many cases, on younger Americans,” Bernstein said.
Recent financial troubles across the country prompted the introduction of the legislation, he said.
“One of the reasons we got into this mess is because consumers, as well as businesses, often took on far more debt than they could viably service,” Bernstein said.
Consumer protection legislation like the CARD Act is especially vital for young people, who often get into trouble with money, he said. Statistical evidence shows that reckless use of credit cards spikes among college-age students and tends to decline among young adults in their early twenties.
Bernstein said there are two reasons why it is unfortunate when young people get in over their heads with credit cards.
“First of all, it’s tougher to get your career started on a good foot if you’re carrying a large, pressing debt burden, but secondly, you can do considerable damage to your credit score … so we think it is particularly important to make sure these consumer protections reach younger people,” he said.
Under the legislation, people under 21 who have a card and would like to increase the credit limit must also get their co-signers’ approval to do so, he said.
Card issuers at universities and alumni organizations are also required to disclose agreements regarding marketing and distribution of credit cards to students, Bernstein said.
Schools often make a profit from deals with card companies, and now, in an effort to increase transparency, such companies will have to make the details of their agreements known, he said.
The law also makes it illegal for companies to distribute free gifts in exchange for signing up for a card on a college campus, but banks will still be able to sponsor events at universities, Bernstein said. Even so, transparency will be key if such action is taken.
Credit reporting agencies are also no longer permitted to provide credit histories of those under 21 to card companies, unless the consumer directs them to, which will reduce pre-approved offers the companies send to students, he said.
All cardholders, regardless of age, will now receive notice 45 days in advance of a company enacting increased rates or fees, Bernstein said.
Cardholder Eric Clark thinks the new law is a good idea.
“A lot of people don’t understand the full concept of credit cards, how you still have to pay it and don’t realize that if you pay the minimum, you still owe more the next time that you have to pay,” said Clark, a School of Arts and Sciences first-year student. “It ruins them for later on.”
Clark, who has a credit card for which his mother co-signs, said he only uses the card for emergencies.
Maria DeJesus, a School of Arts and Sciences sophomore, has a credit card and pays the bill herself each month. She said having someone co-sign for a young person should not be necessary.
“People under the age of 21 should be able to handle that responsibility, and they should be able to make the decision [of whether to get a credit card] for themselves,” she said.
Although she blames companies that often target younger people, DeJesus also said it is the responsibility of cardholders to make themselves aware of details when they sign up for a credit card.
Regardless of who is at fault, it is important that both parties make an effort to be cautious.
“The idea here is to help make sure that responsible practices dominate, especially with younger people, because the costs of getting this wrong are really quite high,” Bernstein said.
Those who believe their rights as consumers as outlined in the CARD Act have been violated can direct complaints to the Treasury Department’s Office of the Comptroller of the Currency at www.helpwithmybank.gov.

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1 comments

RC Alumnus

Wed Feb 24 2010 11:56

The Rutgers University Alumni Federation had - for many years - an agreement with the credit card company (MBNA?) that marketed the RUTGERS credit card to RU students and alumni to share in the revenue from the card - - and that the revenue generated by RU student credit card accounts would be dedicated to scholarship aid. Is that the current arrangement for the RUTGERS credit card?

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