Federal credit law affects students

The Federal Credit CARD Act, or Card Accountability, Responsibility and Disclosure Act, took effect Monday after being signed into law by President Barack Obama last Friday. Among other things, this act changes the way that companies can market credit cards on college campuses.

The law, passed by Congress in May 2009, will help consumers avoid unfair fees, penalties, interest rate increases and other unwarranted changes from credit card companies, according to Federal Deposit Insurance Corporation Consumer News.

The act will also prevent consumers under 21 years of age from applying for credit cards without a co-signer.

According to the FDIC Web site, “Companies will be prohibited from issuing a credit card to [those] under 21 unless he or she submits a written application that includes the signature of a cosigner over 21 or information indicating the young consumer has independent means to repay the debt.”

Also, companies are restricted from making prescreened offers of credit to someone under 21 unless the consumer consents to receive them.

Craig Wells, a bank teller at Wells Fargo Bank on Southwest Fifth Avenue and College Street said, “I don’t like the new limits because you need to establish credit to get loans for cars and for cell phone and apartment contracts.”

“Credit is there to build a financial reputation. It’s good, and necessary,” Wells said.

The new law protects college students from many of the marketing techniques credit card companies employ on campuses.

Aimee Shattuck, director of Student Activities and Leadership Programs, said, “In 2002, Mary Moller of ASPSU (now of Government Relations) ran a campaign to keep credit card companies from setting up tables and passing out brochures on Portland State campus.”

Moller said, “We knew that credit card companies were coming on campus and hassling students with high APR (over 20 percent) credit offers.  They offered cheap free gifts and failed to provide any credit counseling to prepare students,”

“We believed they were predatory going after a population that was not in the business of making money, but rather getting an education to prepare them for the future,” she said.

A Higher One representative in Neuberger Hall, who was not aware of the new law, said, “Higher One is not a credit card so the new policies do not affect us, but I think it will be helpful for students trying to pay off debt.”  

According to the Oregon State Public Interest Research Group, credit card companies use a variety of unfair practices to trap consumers in a cycle of “overpriced debt.” Previously, regulators allowed companies to raise rates for any reason.

On April 24, the Government Accounting Office released a report finding that 57 percent of consumers who carry credit card debt want a clear disclosure on their monthly bill explaining how many years it will take to pay off the card if only the requested minimum payment is made, according to OSPIRG representatives.

The new law will ensure that lenders include on monthly statements the length of time it would take customers to pay off their balance if they make the minimum payment every month. Additionally, they will have to offer calculations for how much must be paid in order for a customer to rid themselves of debt in three years. 

Other important changes that took effect yesterday affect the way card companies handle consumer payments.

For cards with multiple interest rates—for example, a low rate on a balance transferred from another card and a higher rate on new purchases—card companies will be required to apply the portion of payments that is over the minimum payment to the highest-rate balances first, according to the FDIC Web site.

This will eliminate the practice of some card issuers applying payments toward balances with the lowest rate first, while leaving the highest-rate balances to continue accruing interest costs.

Under the new law, credit card issuers must supply clearer and timelier disclosures of account terms and costs—before and after an account is opened.

Also, credit card payments must be due on the same day each month. This change is intended to prevent consumers from acquiring late charges by missing a due date as a result of it changing from month to month.

If the due date falls on a holiday or weekend, the deadline is moved to the next business day. Also, card companies must accept and post payments received by 5 p.m. on the due date.

They can no longer, for example, have early-morning deadlines for payments to be credited on the due date, according to the FDIC Web site.

Under the new CARD law, credit card companies
– Cannot market on college campuses
– Must mail bills three weeks before the due date
– Are required to schedule due dates to fall on the same day every month
– Have to issue warnings 45 days before changing rates or fees (variable-rate cards excluded)
– Can only increase interest rates after 12 months
– Will issue statements that include how long it will take to pay off the balance
– May not issue cards to applicants under 21 years of age without a cosigner
– Cannot charge to pay balances by phone, online or by mail unless it is an expedited payment
– Will not penalize customers for exceeding credit limits
– Must apply the extra amount of payments made above the minimum to balances with the highest interest