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Changes in credit card regulations may benefit students

The first of many deadlines required by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD) went into effect last Thursday.

Card companies must now give at least 45 days of warning of any policy changes to credit accounts. In addition, consumers must be given at least 21 days to pay their monthly statements and are now able to opt out of any interest rates and fee increases by canceling their accounts and paying their balances under the old terms of usage, according to creditcards.com.

For students, the new act means drastic changes in how they obtain and use credit. Yet the deadline for companies to comply with parts of the law pertaining to students is not until February of 2010. Jon Drummond, corporate spokesperson for Discover, said his company does not anticipate making any major changes to their policies.

‘We have the basic direction, but we’re waiting for the full interpretation of the law from the Fed.,’ he said. ‘We haven’t marketed on campuses for more than three years, so we really don’t have to do anything with regard to that. We haven’t needed to go on campus like some of our competitors and offer free incentives.’

According to the ‘Protection of Young Consumers’ section of the act, a credit card issuer cannot offer students tangible benefits in exchange for a credit card application if it takes place on campus or at an event sponsored by an institution of higher education.

Congress also recommended that higher education institutions consider requiring credit card issuers to inform campuses when they will be marketing on campus, limiting the number of locations on campus and having debt education counseling sessions for new students.

Consumers under the age of 21 can only open a credit card account with a cosigner who has proved the ability to repay or if they can prove the ability to repay on their own, according to the act.

Drummond said he was unsure exactly how a consumer would provide proof, but that it would be explained to the banks when the interpretation of the law was released.

While it is unclear what the proof of financial independence will be, Jeanne M. Hogarth, program manager and economist for the Federal Reserve Board, said she thought it would entail financial institutions looking at a student’s assets.

‘My bet is that most incoming freshman certainly aren’t going to have that kind of evidence of financial independence,’ she said.

There are also provisions for a ‘Safe Harbor’ in section three of the act, which mandates the full disclosure of agreements made between credit card companies and higher education institutions.

Tahira Hira, executive assistant to the President and a member of the national President’s Advisory Council on Financial Literacy, said she thinks implementing the new restrictions is responsible.

‘The reason behind this is that we need to make sure that people who are asking for credit cards understand how they are used, and some people promise to pay later and didn’t have the ability,’ Hira said. ‘The government is saying that we need to make sure that we give the card to someone who has the potential to pay what they charge on the credit cards.’

Hira said credit card companies had been heavily criticized for giving credit cards to everyone, and especially to young people.

‘So now, if these young people are dependent on other adults, parents or others who are committing their money, well, I think that’s important because now that adult will be part of this whole conversation and will have some understanding of what their student is spending,’ she said. ‘They can put some rules and regulations on it.’

Hogarth said the reason credit card companies were able to offer credit to students without worrying about their income was the low amount of credit extended.

‘So the credit card companies are not really risking a lot. You might have a couple of hundred dollars rather than a couple of thousand dollars,’ Hogarth said.

She said students are not a traditionally irresponsible group.

‘Many students are pretty good credit card users historically, they’re more likely to pay off their balances each month than the general public and obviously they keep their balances lower because they have a lower credit limit,’ Hogarth said.

Roberta Johnson, director of financial aid, said her office does handle a few cases of students who have become overwhelmed by credit card debt.

‘Overall, it’s probably a low amount of students that our office sees,’ Johnson said. ‘Students are not required to report their credit card debt to us, so we don’t really know how much they are carrying.’

For the student suffering from debt, Johnson said, the financial aid office can offer assistance if they have not exceeded the amount of financial aid the university can offer.

‘What we do know is that, in many cases, that can be a one time fix, so they can get themselves back under the limit and then they can end up as repeat visitors to our office,’ Johnson said.

A more long-term approach is needed to keep that from happening, she said.

‘I believe this legislation is intended to keep students out of credit card debt in the first place,’ she said. ‘For some students it’s definitely a good idea, but it’s part of a larger puzzle and people need to realize that credit in and of itself is not a bad thing.’

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