By now, you have more than likely become familiar with the CARD Act. The Credit Accountability, Responsibility, and Disclosure Act is scheduled to take effect this coming Monday (February 22), nine months after it was signed into law by President Obama. The legislation will change all kinds of things about the credit card industry, most of which will make a major impact on consumers and the way that they use their plastic. One of the groups most affected by the new rules will be college students. Up until this point, people reaching their eighteenth birthday were able to apply for, receive, and utilize credit to their heart’s content.
But a tremendous amount of research has shown that attaining the age of majority does not automatically make a person ready to responsibly use plastic. College students and young adults are the group most likely to get into trouble as the result of irresponsible credit card use. It’s just a fact. And yet, this is the age when most adults have, up until now, attained their first credit card. Sallie Mae found that eighty-four percent of undergrads hold at least one piece of plastic, and contemporary research has found that the average coed has a few thousand dollars in credit card debt by the time they graduate. Only ten percent of survey respondents in a Money Management International (MMI) Back to School survey believe that students should be using credit cards while in school.
The lawmakers who wrote and approved the CARD Act obviously agreed. Overall, the law will make it much harder for collegians to obtain credit. There are several new provisions involved in the process. The first of which is that prospective credit card applicants younger than twenty-one must have a cosigner for all credit card applications, unless they have independent income great enough to sufficiently repay the debt. This will block almost all college students from independently obtaining plastic. Furthermore, the cosigner must approve any and all credit limit increases in writing while the primary applicant stays under the age of twenty-one.
Credit card companies will no longer be able to send unsolicited, prescreened card solicitations to consumers younger than twenty-one, either. Nor will they be allowed to give away promotional items as incentives to stir up credit card business on college campuses. This provision of the new law was written in direct response to the outrage over credit card issuers signing students up for credit cards with high interest rates and Byzantine term and conditions after tempting them with trinkets like coupons for free lunches, varsity t-shirts, and baseball caps. Card companies may set up tables on campus with the permission of colleges and universities, but they are barred from offering swag to applicants in exchange for completed and/or approved applications. Up until this point, credit card companies were a daily presence on college campuses, enticing students with the offer of free stuff. Freshman in particular would often get excited about these goodies, and recklessly apply for credit that they neither needed nor were able to use responsibly.
Colleges that do allow credit card issuers to hawk their wares on campus must provide financial literacy education to their students. Research has shown that this is knowledge sadly lacking in the young adult segment of the American population. Many young adults don’t understand the long-term consequences that irresponsible credit card use can have on their life, let alone complicated things like credit scoring, compound interest, or how to read and understand the information on a credit report.
On one hand, the CARD Act might be seen as taking some rights away from young adults. On the other, however, this law also will go a long way towards preventing a vulnerable consumer population from making bad financial decisions at a stage in their life when they are not equipped to handle the great responsibility and temptations of credit cards. With the requirement that these young consumers obtain the help of a cosigner before applying for credit, it’s possible that more financial education will take place at an important place: in the home. It’s unlikely that many parents and/or guardians will be willing to jeopardize their own carefully-cultivated credit score for a free-wheeling teenager with no concept of how to walk away from a decent sale at the mall. Hopefully, the implementation of the CARD Act will give rise to a generation of college-aged adults who use their credit a bit more responsibly than their forbearers, depriving greedy card companies of the chance to use them as their own personal money trees.
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