By Ashley May
You've probably already seen changes in the world of credit cards or at least noticed all the disclosure notices appearing with your credit card bills. The first phase of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) went into effect Aug. 20, 2009.
The last round of credit card changes will be effective in August 2010. Those changes primarily affect credit card fees. Changes related to general-use prepaid cards, gift certificates, and store cards also will go into effect at this time.
new rules for card issuers
The majority of the Act went into effect Feb. 22, 2010. Among the changes are many that affect how those younger than age 21 can obtain credit, including limits on marketing and issuing credit cards to this group:
The CARD Act of 2009 limits unfair practices and improves consumer disclosures.
- To use a credit card, anyone younger than 21 years of age must be an authorized user on a parent's account. To have their own cards, individuals must show proof of adequate income to pay card debts, or have an adult co-signer.
- Prescreened offers to consumers younger than age 21 are banned.
- Card companies are banned from offering free gifts for completion of an application on or near a college campus and at college-sponsored events. This used to be a common credit card marketing activity.
- Colleges, universities, and alumni associations must disclose details of contracts they sign allowing credit card marketers access to student and alumni contact info.
- Card issuers must file reports annually with the Federal Reserve Board listing all business/marketing/promotional deals with schools. These reports must detail the terms and conditions, list schools by name, and identify how much the issuer is paying the school.
The CARD Act also recommends that colleges offer credit card and debt education sessions during new student orientation.
legislation good for young adults
Mike Schenk, vice president of economics and statistics at the Credit Union National Association, Madison, Wis., says the new legislation will be good for overall credit use among young adults.
"The new legislation will lead to better money management, to young people being more careful about carrying balances and paying off balances on time," Schenk says. "Ultimately, that will improve their overall financial health."
According to Kelli B. Grant, senior consumer reporter for SmartMoney.com, the new legislation could protect young consumers from going into debt.
"With some of these new restrictions, there are a few more safeguards in place to make sure you understand what you are signing up for—that you are getting terms that are fair to you based on your ability to pay off that debt," Grant says.
honesty's the new policy ... or is it?
"[Students] have some protection regarding how credit card issuers can reach out to them—in most cases it is now going to be through their parents," Grant says.
Credit card issuers have to include a minimum payment disclosure that explains how long it will take to pay off the balance and the total cost in interest charges if you pay only the minimum amount due.
In addition, card issuers can't increase credit limits without considering the ability of the borrower to make required payments.
"Just because they have to tell you doesn't mean they have to tell you clearly," Grant adds. "These items could be buried in a lot of fine print. Just make sure you read everything that is being sent to you."
Credit card companies will try to work around the legislation, Grant says.
"Credit card companies have shown [that] they are swiftly finding ways to work around all of the prohibitions," Grant says.
take responsibility for your credit
Even with changes in place, Grant warns that the new legislation cannot protect all aspects of consumer behavior.
"There is still no protection for making a bad financial decision," Grant says. For example, "These new laws don't keep you from going out and buying a $1,000 TV...if you've got the credit to do it."
Michael McCall, professor and chair of marketing and law at Ithaca College, N.Y., says he isn't sure credit card legislation is the best solution for young consumer debt.
"It's one more law being enacted largely to protect people from themselves, which is a bizarre twist," McCall says. "Rather than having people learn how to use credit responsibly, we are going to the other side and regulating how they are able to use it."
McCall says because young adults are becoming less reliant on cash and more reliant on plastic forms of payment, they should know how to use that credit properly, even with new legislation in place. "You almost have to have [a credit card] now," McCall says.
According to Schenk, credit unions weren't involved in the deceptive practices that led to the new law, and will not try to trick consumers into high interest rates or unfair payments."What [young adults will] ultimately discover is that credit unions are a good deal—that credit unions will benefit them financially, not only because they have lower rates than other institutions but also because they have fewer and lower fees," Schenk says.