The CARD Act of 2009: New Rules for Student Credit Cards

Sallie Mae’s National Study of Usage Rates and Trends for 2009 found that college students have an average of 4.6 credit cards, and half of these students have four or more credit cards (1). The average student credit card balance was found to be $3,173. These statistics report much higher numbers than those published in prior years.

In order to help curb the problem of excessive student debt, President Obama signed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act in May of 2009. The CARD Act imposes new rules on credit card companies, including rules about how credit cards are offered to individuals and students under the age of 21.

The signed CARD Act, Title III, includes three sections pertaining to underage consumers who wish to obtain a credit card (2). These sections make the following requirements:

1. Potential card holders must have a co-signer or be employed.

Therefore, for students under the age of 21, credit cards will no longer be issued unless those students can find a qualified co-signer (e.g., parent, legal guardian). In lieu of a co-signer, students will be able to obtain a credit card if they can prove that they have the means to repay the debt, such as through a job or personal savings. Also, depending on the state, college students will be required to take a fiscal responsibility course before being issued a credit card.

Even for students who are able to obtain a credit card by finding a co-signer or proving that they have gainful employment, credit card spending will be limited to either $500 or 20 percent of their earnings, whichever amount is greater.

2. Card companies cannot offer incentives at college campuses.

In the past, credit card companies would set up tables at college campuses and offer free items (e.g., T-shirts, mugs, posters) to students who signed up for a credit card. Under the CARD Act, this will no longer be allowed. Also, colleges and universities may choose to limit how many credit card issuers are allowed on campus. Finally, credit card companies will be required to report their contracts with colleges and universities to the federal government for review.

3. Young consumers will no longer receive pre-screened offers.

Consumers who turned 18 years of age used to be inundated with credit card offers in their mail. Credit card companies would pre-screen these consumers and send them numerous flyers and applications for high-limit credit cards. With the CARD Act of 2009, credit card issuers can no longer send out such mailings unless the consumer has specifically requested them through an opt-in list. Furthermore, the consumer can always choose to opt out of receiving such promotional offers either before or after his or her 21^st birthday.

While the CARD Act may not completely solve the issue of student debt, it will help curb it significantly. Students will still need to make wise decisions when it comes to obtaining and using their credit cards.

Hally Z.