'Credit Card Act' will have little effect on college students

The newly signed Credit Card Accountability Responsibility and Disclosure Act of 2009 or Credit CARD will have a small impact on college students in need of credit.

President Obama signed the act into law Friday fulfilling his promise to make it a law by Memorial Day. The act will not take affect for nine months.

The White House released a statement detailing the effects the credit card industry has had on consumers and the economy. "Every year, Americans pay around $15 billion in penalty fees. Nearly 80 percent of American families have a credit card, and 44 percent of families carry a balance on their credit cards."

"Larger and out-of-state banks are what causes this to happen because of greed. If they treated customers like they should then legislation would not have happened," said Mimi Van Nortwick, vice president of marketing and operations for East Carolina Bank.

"Most credit card banks are based out of Delaware because they are so liberal (on their policies) about rates and fees," she said.

In an effort to protect consumers, rebuild the economy, and encourage personal responsibility the Credit CARD act of 2009 was drafted. The act will make it more difficult for credit card companies to raise interest rates. The bylaws of the act make clear what credit card companies can and cannot do to consumers with existing accounts and consumers who will get accounts in the future.

In his weekly address titled Credit Card Reform, the President pin-pointed four long-term issues that he wants the reform to do. "First, there have to be strong and reliable protections for consumers.

Second, all the forms and statements that credit card companies send out have to have plain language that is in plain sight.

Third, we have to make sure that people can shop for a credit card that meets their needs without fear of being taken advantage of. Finally, we need more accountability in the system, so that we can hold those responsible who do engage in deceptive practices that hurt families and consumers."

The White House statement is enforcing new protections for college students and young adults. One of these requirements is for "card issuers and universities disclose agreements with respect to the marketing or distribution of credit cards to students."

For many students and young adults this will result in less mail solicitation and no more on-campus bribes to sign up for a credit card.

The act will make it difficult for consumers under the age of 21 to receive credit without a cosigner over the age of 21 who will accept responsibility for the credit of the underage consumer.

According to the act those consumers under the age of 21 may receive credit if they, "submit financial information indicating an independent means of repaying the credit on an account; or completion of a certified financial literacy or financial education course designed for young consumers."

The law is also requiring The Secretary of the Treasury post a list of the certified courses available.

Some local banks, like East Carolina Bank have already had safeguards in place for younger consumers. "We council before well take an application. We talk to people about credit, especially if someone is that young, we want to make sure they are responsible," said Van Nortwick.

"We apply the C's of credit. 'Character' concerns whether they pay bills on time. We look at if they have the capacity to repay the debt, then based on need we recommend a Credit line that is best for them."

Most college students are not financially stable enough to acquire a credit card without a cosigner, but the act specifically targets those under 21. There are very few resources for students at East Carolina University to learn about financial responsibility.

The people to be most affected by the new reform will be banks and credit card companies who may lose revenue. "Well I think that one, co-signers for under-21's, is purely a benefit to the credit card industry to compensate for the risk they face in giving out credit cards, a risk that they are not going to be able to recoup what's spent on those cards," said Dr. Richard E. Ericson, Professor and Chair of the Department of Economics.

These new protections will not change most policies banks and credit card issuers already have.

Ericson said, "For the student's, I don't think it will have much of an impact, unless you have no one who is willing to co-sign. Then it will be a negative impact for sure."

The benefits for all credit card holders in the act include requiring credit card companies to give 21 days notice before a bill is due. A 45-day advance notice must also be given before rate increases. To make up for potential lost in revenue, companies will charge new or higher annual fees. Companies will become stricter on credit limit requiring permission and a fee for permission to exceed a credit limit.

The age limits set by the act will not have as much of an affect on the overall economy. This age range consumes more luxury items than costly necessities. This restriction will only affect a small portion of the overall economy.

"In the overall economy [college age students make up a] little bit more than their portion in the population. When you think about necessities, basic items, because they largely have families to fall back on or some kind of a school plan their discretionary impact is rather low," Ericson said.

Van Nortwick says being informed is also important when going into new financial situations, "The education is just as important as taking the application."

This writer can be contacted at news@theeastcarolinian.com.