New legislation aims to change young adult’s outlook on credit cards and encourage ethical behavior from the companies providing them.
The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, effective Feb. 2010, is an integral component of the Obama administration’s efforts to increase consumer protection.
Under the act, persons below the age of 21 are required to provide financial information proving their ability to pay off debt. Alternatively, these individuals may opt to include an adult co-signer who retains joint liability on all debt accrued.
“For too long, credit card companies have had free rein 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,” said Jared Bernstein, senior economic adviser to Joe Biden. “They’ve had a specific tough impact, in many cases, on younger Americans.”
Bernstein advocates responsible credit management by younger Americans who risk damage to their credit score if they rack up large amounts of debt.
Stephen Rodenmayer, psychology freshman, said he thinks it’s good the government is encouraging responsible borrowing.
Financial Leadership Association president Jeff Harrington, finance graduate student, looked at the Act
in detail and said the issue isn’t completely straightforward.
“This Act in my opinion addresses the effect, not the cause. It is reactionary, not proactive,” Harrington said. “If you balance your budget, manage your finances well and save your money, it’s quite possible you wouldn’t need credit.”
Harrington said he believes the true problem stems from consumer spending habits.
“We’ve got 100 years of marketing and trillions of dollars spent on marketing to get people into the mindset that they need to spend, spend, spend. Once they’ve spent everything they’ve saved they’ll go out on credit and spend, spend, spend again,” Harrington said.
The Credit CARD Act of 2009 also establishes specific rules that affect institutions of higher education.
In order to increase transparency, schools and credit card companies must publicly disclose details regarding all promotional agreements and marketing deals they have made, Bernstein said. Credit card companies may no longer offer free giveaways to entice students into signing a contract on or near college campuses, Bernstein said. Harrington said this happens more than some might think.
“People apply for 20 different credit cards just because they get a free T-shirt,” Harrington said with a chuckle. “That’s the way college students are — if you give them things for free then you’ve got their attention.”
The act also introduced new consumer protections, which affect all citizens. Interest rates cannot be raised during the first year an account is open, and credit card companies are required to send written notice 45 days before any significant changes are made to fees or interest rates. Harrington particularly appreciated this portion of the act.
Before the CARD Act went into effect, credit bureaus shared consumer information with all card companies, Harrington said. This often led to raised interest rates for the consumer from all lenders, regardless of the individual’s standing with that particular company.
Though the act helps protect consumers and advocates responsible credit usage, students and other borrowers still have to earn a good financial history.
“Credit isn’t a right. It’s a privilege,” Harrington said.
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