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Credit card death
Students might want to think twice before getting a credit card
Ashley Geren / Roundup
Beginning Spring 2010, college students around the nation under 21 years of age will be affected by the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, signed into law May 22 by President Obama.
The new bill, which is being called the credit card “Bill of Rights,” amends the Truth in Lending Act in that consumers under 21 who wish to obtain a credit card have to meet two requirements: (a) They have a cosigner over the age of 21, such as a parent, guardian, or spouse, or (b) have proof of adequate income.
“I think it’s pretty inconvenient since most students starting are around 18… especially for a lot of students who aren’t able to get a cosigner and, in times like this, it’s harder to find jobs, so they don’t have proof of income,” said Max Jaffe, 18, a full-time student at Pierce College.
Economics professor Pamela J. Brown, Ph.D., believes the new law is useless red tape.
“Americans are eligible to vote at age 18. If you are old enough to vote and to become employed, you are old enough to open a checking account, pay taxes and use credit cards… these [laws] are enabling philosophies that only validate and prolong childish conduct and choices,” Brown said.
Placing restrictions on college student credit cards is not a new concept. The College Student Credit Card Protection Act, introduced in 2005, limited the amount of credit a college student could receive to either 20% of the student’s annual income, or to the product of $500 times the number of years the student has had the card, not to exceed $2,000.
According to a 2009 survey by Sallie Mae, half of college students have obtained four or more credit cards with the average balance being $3,173. This is a record, having increased from 40% of students having four or more credit cards in 2004.
Until the College Student Credit Protection Act was passed in 2007, the use of gifts to gain customers had been a normal practice to lure in students. This law prohibited the offering of incentives to students for filling out credit card applications in California.
The CARD Act also addresses the marketing of credit cards on college campuses. It is intended to bring about stricter guidelines as well as transparency in this marketing relationship. Each higher learning facility has to make available any information regarding an agreement between their facility and a financial institution offering lines of credit.
The Govtrac.com summary of the bill states that the law also requires “mandatory reports submitted by creditors as well as their marketing practices to determine the impact that college affinity card agreements and college student card agreements have upon credit card debt.”
“Credit card companies are counting on students to spend beyond their means with their credit card. They make a fortune on interest payments from college students,” said Naomi Rockler-Gladen in an article at collegeuniversity.suite101.com regarding the College Student Credit Protection Act.
According to CreditCards.com, the average credit card APR is 12.66%, while the average student APR is 15.79%. The Citi Forward and Platinum Select Visa Cards for College Students both have introductory APRs of 0%, and then they adjust back to the regular 17.24% APR that applies retroactively.
“The higher interest rates charged are completely reasonable, given that students are unknown quantities with little bill-paying, credit or employment histories. The banks and credit card lenders must protect the interests of those lending money — depositors, who are the rest of us, including parents and grandparents of these students with savings at risk,” Brown said.
The CARD Act does not protect anyone against raising interest rates, but it does put limitations on the circumstances under which a credit card company can raise the APR on a credit card. Some of the circumstances where a card issuer can raise the interest rates include falling 60 or more days behind on payments or if you have an adjustable rate instead of a fixed rate.
CreidtCards.com has many resources that are useful to anyone seeking to learn more about credit card options. They encourage people to shop around and be educated before making any credit-related decisions.
The Web site also provides customized calculators that can be used to determine the length of time it will take to pay off a balance, how much money can be saved by transferring the balances to a lower interest rate card, and more.
