Financial institutions that prey on college students by offering gifts and other promises in order to entice them to sign up for credit cards has been a huge problem…one that fortunately is about to come to an end. Both the House and the Senate recently passed the Credit Card Accountability Responsibility and Disclosure Act of 2009, which President Obama is expected to sign into law. What is significant about this act? Aside from addressing what are considered unfair practices with respect to interest rates charged to cardholders, this act will do much to curb potential abuses targeted at college students. You may recall from one of my prior posts that students graduate from college with, on average, more than $4,000 outstanding in credit card debt, according to a recent Sallie Mae survey. This truly illustrates how serious a problem student leverage has become.
The most significant provisions of the act relating to college students can be summarized as follows:
- The issuance of credit cards to consumers under the age of 21 is prohibited unless
- a co-signer, 21 or older, agrees to be jointly responsible for the account, or
- the borrower can demonstrate independence and the means to repay debt incurred under the card.
- Credit card companies may no longer offer give-aways on or near college campuses to induce students to sign up for credit cards; The act will also encourage colleges to set policies that will limit credit card marketing locations and institute credit and debt counseling as part of their student orientation.
- Any contracts between colleges and credit card companies will require public disclosure.
This is a much needed first step to address a practice that is contributing to the potential financial irresponsibility of the Millennium generation. The changes that the act will institute are overdue, and we as parents should take this opportunity to also counsel our children on good and bad debt to help them establish sound money management habits as they move on to financial independence.