The Credit Card Accountability, Responsibility and Disclosure (CARD) Act was placed into effect Monday with the intent to protect credit card consumers from unfair credit card billing and fees.
President Barack Obama signed the CARD Act into law last spring. Aside from some of the major new protections, there are also specific protections for consumers under 21.
Senior Economic Adviser to the Vice President Jared Bernstein held a conference call yesterday for college media to discuss the effects of the CARD Act.
“The idea here is to help make sure that responsible practices dominate, especially with young people, because the costs of this are really high,” Bernstein said.
Bernstein said it is vital that younger consumers be protected from “getting in over their heads with credit cards.”
“It’s tougher to get your career started on a good foot if you’re carrying a large, pressing debt,” he said. “Secondly, you can do considerable damage to your credit score and that hurts you moving forward as you begin life and want to make the investments that families make when they get older.”
One of the new provisions states that people under 21 cannot open a credit card account unless they have a co-signer or can provide evidence that they make enough income to afford monthly payments. If the credit card holder wants the credit limit to increase, they need written permission from their co-signer.
In addition, credit card companies are restricted from promoting their cards on college campuses and are outlawed from handing out promotional items to students in exchange for signing up for a card. According to Bernstein, this provision puts “responsibilities on institutions that have often promoted credit cards” to younger consumers.
There are also new notification requirements. Credit card companies must now notify consumers 45 days in advance of any changes made to the terms of their card use. Credit card companies must also give consumers the option to cancel their card before the changes go into effect.
Janate Valenzuela, a sophomore political science major, thinks “that this will be helpful for students who are just starting out with a credit card” because it “gives them power” over their finances.
“I don’t have a credit card, but this makes me feel a little more confident when I start looking for one,” she said.
In addition, monthly credit card bills must be mailed to the consumer at least 21 days before payment is due. The due date must be consistent month to month.
Calvin Park, a junior rhetoric and composition major, thinks a consistent due date is helpful “because a lot of times, you miss payments by a day due to the inconsistencies”of the dates.
In addition, credit reporting agencies cannot give out the credit reports of consumers under 21 unless consumers allow them to. According to Bernstein, this will reduce the number of pre-approved credit card offers that a young consumer will receive.
Sophomore mathematics major Brett Butler said it “keeps students safe from being too careless with a credit card and keeps companies from giving credit cards to people under 21 who may not have the funds for it.”
However, Butler is afraid that “rates may skyrocket” now that the new restrictions reduce some of the credit card companies’ older forms of revenue. According to Michelle Singletary, personal finance columnist for the Washington Post, this may be a possibility. Credit card companies can still raise rates under certain conditions, such as when an introductory or promotional rate expires.
Also, if a consumer is 60 days or more late on paying their bill, their card company can increase the rate on new charges with no federal cap on how high the rate can go.
Isabelle Gomilla, a junior business management major, said “credit cards are a horrible thing to get,” adding that she only got one to build her credit. “I think about being an adult with high credit and only 8 percent interest, where here I am with my credit card paying 26 percent interest.”
Gomilla knows the specifics of her card agreement and reads the fine print. However, the fine print will not continue to be so fine, as the terms of a credit card agreement must now be written in at least 10-point type.
“For too long, credit card companies have had full reign to employ misleading and unfair practices that hit consumers with unreasonable costs, often in ways that were shady and very difficult for people to sort out,” Bernstein said. “This CARD Act is a key part of a number of administration initiatives to increase the protection of consumers.”
Visit helpwithmybank.gov for help with financial management and information on the CARD Act.