Written by:
Shali Zhu

The Extra Credit that College Students Do Not Need

If you have or are considering having a credit card in college, you might want to take a look at the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, which went into effect a month ago. Although the act addresses a range of issues surrounding the often loosely regulated credit card industry, it contains a set of measures that specifically target young consumers such as college students. Beginning on February 22nd of this year, anyone under 21 years of age applying for a credit card will be required to either demonstrate that he or she has an independent source of funds to pay the bills or ask a parent to co-sign the application. This is not the only change that Congress is making to help keep students from becoming buried in excessive credit card debt. In addition, according to an article published by the New York Times, the legislation prohibits credit card companies from luring college students with tangible inducements such as free gifts at campus events in exchange for opening a credit card account. Moreover, card issuers are now required to disclose any “college credit card arrangement” they may have in annual reports to the Federal Reserve Board, cites an article by Inside Higher Ed, which reports news and other information about higher education.

Furthermore, notes Truth About Credit, a project established by U.S. PIRG and the Student PIRGs, whereas banks could previously charge penalty rate hikes of as much as 36% for a late payment, they are now not allowed to increase a consumer’s interest rate on current balances by a single percentage point unless the payment is more than 60 days overdue. Additionally, consumers must be given notice 45 days in advance if their bank is planning to increase the interest rate or other fees on their credit card accounts. Finally, unfair practices such as double-cycle billing, in which interest is charged on both the consumer’s current balance and balances already paid off, are no longer permitted.

However, this new law is not a panacea for curing every problem regarding credit card debt. Although the new law forbids retroactive interest rate increases and demands a longer time horizon for notification of imminent rate raises, it neglects to include any cap on the rates that credit card companies can charge, an issue whose importance to which anyone who has ever worried about paying the bills can attest.

To learn more about the Credit CARD Act of 2009 and to find out what you need to know about credit cards, read this article from U.S. PIRG by clicking here. Photo courtesy of Wikimedia.