Credit CARD Act impacts college students

The act has received mixed reactions.

Future college students may not face the same credit card dangers that are prevalent today, thanks to new legislation that reforms the credit card industry. President Obama recently signed into law the Credit Card Accountability, Responsibility and Disclosure [CARD] Act of 2009 which has certain rules and restrictions designed specifically to protect college-age students. The act has received both positive and negative reactions since being passed. While almost unanimously accepted as beneficial protection against creditorsâÄô predatory practices, opponents of the act inquire as to whether or not this takes responsibility off of reckless spenders, and if banks will simply find a way around these new regulations, which go into effect in February 2010 . Others support the protections the act grants to college students, aged 18-21. Among other restrictions, the act prohibits credit card companies from offering free merchandise to college students in exchange for signing up for a credit card account when the offer is made on or near the college campus, or at a college event, according to an article on the act by the National Association of Student Financial Aid Administrators, or NASFAA. Justin Draeger, NASFAAâÄôs vice president of public policy, advocacy and research, said NASFAA helps deliver financial aid to students at more than 20,000 institutions. The act also prohibits creditors from issuing a credit card to students who have not applied for one first, and requires that students who do apply submit proof of income and their financial history. Students receive an average of 25 to 50 card solicitations per semester, according to a study performed in 2008 by United College Marketing Services âÄî a company that markets credit cards to college students. By limiting the credit line of one card to the greater of $500 or 20 percent of the studentâÄôs annual income and limiting the credit line from all credit cards to 30 percent of the annual income unless there is a co-signer , the act aims to prevent debt later in studentsâÄô lives. Kris Wright, director of the University of MinnesotaâÄôs Office of Student Finance said these limits are beneficial in ensuring students arenâÄôt taking on âÄúmore debt than they can handle.âÄù According to UCMS statistics, of the 9,900,000 students at U.S. four-year colleges, each student has an average of 2.8 credit cards, with an average balance of $885. âÄúWe support the provisions in the credit card act because it includes important new disclosures for borrowers and will make credit cards less accessible to students who would be better off using other forms of credit while theyâÄôre in school,âÄù Draeger said on behalf of NASFAA. âÄúThe new law doesnâÄôt prohibit students from taking on credit cards, but it takes some giant steps forward in protecting them from predatory lending practices.âÄù In a section entitled âÄúSense of the CongressâÄù âÄî a recommendation without the force of the law âÄî the act also encourages creditors to notify colleges if they will be marketing on the campus, and that the number of locations where this marketing takes place is limited by the college, said the NASFAA article. This section of the act also recommends that colleges offer credit card and debt education sessions as a part of new student orientation. Wright said the University already takes some measures to teach new students how to manage money with activities at Welcome Week and at orientation. The central theme of the education materials is to âÄúlive like a student now so you donâÄôt have to later,âÄù she said. The UniversityâÄôs Boynton Health Service also offers financial counseling for an assortment of student financial issues, among them debt management plans. Alicia Smith , vice president of the UniversityâÄôs Minnesota Student Association, questioned if students need these protections. âÄúThe assumption should not be made that college students cannot be fiscally responsible,âÄù she said. âÄúStudents ought to be able to build credit on their own, regardless of whether or not they have a co-signer âĦ Going to college means independence, and to some extent, that has been hampered.âÄù