The Impact of Credit Card Legislation on College Students
May 27th, 2009The new credit card protections signed into law recently by President Obama have been both praised and belittled. On the positive side there is little doubt that the steps will eliminate some of the most contentious billing practices currently in place (raising interest rates without prior warning).
However, one group of critics insists that the costs of the new protections will be passed on to more reliable credit card holders. A second group of naysayers stipulates that some of the biggest issues have simply not been addressed.
In either case it is important for college students to understand that the legislation will have an enormous impact on their access to credit even as it seeks to protect them from predatory lending practices.
Credit No Longer as Easy to Get
In recent years, credit card companies have almost been throwing cards at students that were willing to sign up for one. Offering everything from t-shirts to iPods, these companies sought to develop brand recognition that they hoped would remain when college students began their post-campus lives.
Those days are likely over as the new legislation greatly reduces the availability of credit for students. Without a co-signer, full-time college students under 21 will now be able to obtain a line of credit only up to 20% of current income.
To get the full access that students once had a co-signer will be required. If a card holder does have a co-signer, most likely a parent, they will have enormous protection under the new law. The most recent legislation requires that any interest rate increase be approved by the co-signer.
Given the general financial status of most college students, the bottom line is that credit cards will be far more difficult for a student to obtain without a signature from a parent.
Major Negative Practice Still Permitted
The new law does not address one of the long-standing, college credit-card issues called affinity-card contracts. In simplest terms, colleges and universities can still sell a student’s contact information to a credit-card company.
According to BusinessWeek.com, this information represents incredible sources of money for colleges. The site notes that the e-mail addresses and contact information of the students at the University of Michigan are provided to Bank of America for the astonishing sum of $25.5 million.
The 11-year deal provides the Michigan Alumni Association 0.5% of the total purchases made using one of the school-branded cards. Therefore, the school has an incentive for students to acquire and use a specific credit card.
Given the current issues of mounting credit card debt for college students, the idea that schools would encourage debt accumulation is akin to heresy in many quarters. But the new law does not address this troubling issue.
General Positives for All Card Holders
For those holding credit cards and debt, the new law offers several protections. First, under the new legislation, interest rates may not be increased on outstanding balances until a person is 60 days late with a payment.
Second, the changes provide card holders a chance at redemption. If a card holder does become delinquent and is thus subject to a rate increase, they can regain their initial lower rate by paying on time for the next six months.
In yet another critical aspect for all card holders, the legislation also eliminates fees for paying balances online.
Changing Rules
Given the current status of credit card debt and the need for greater financial knowledge among college students, the restriction on predatory charges and the reduction in ease of credit will both be positives in the long run.
Easy credit has often meant the accumulation of debt and the potential for long term financial challenges for college students. Those challenges were then exacerbated by exorbitant interest rate charges.
Making credit tougher to get while reigning in rate increases represent a two-fold step in the right direction.
