Credit CARD Act Guide Part 1:  Last Chance for Solo Student Credit Cards

The Credit CARD Act of 2009 kicks into full effect on February 22, 2010. Consumer advocates hailed the Act's curbs on service fees and interest rate hikes, even though  they played a role in some banks reducing credit limits and closing some accounts. Student borrowers earned lawmakers' attention after industry critics complained that casual campus marketing has trapped a generation of young Americans in long-term debt. Americans under the age of 21 must act quickly to receive new lines of credit under their own names.

No New Credit Cards for Students Under 21, Without Co-Signers

The Credit CARD Act prohibits lenders from issuing new credit cards to Americans under the age of 21 unless they find an adult co-signer capable of paying off a new credit line. While promoting financially responsibility, this new stipulation could scare away students who would prefer that their parents not see the itemized details of a weekend road trip. Students tempted to lie on their credit card applications should review another of the Act's new rules--credit bureaus can no longer supply reports on Americans under age 21 without parental consent.

New Credit Card Applications Harder to Find on Campus

Over the past few decades, cash-strapped college kids have traded credit card applications for meal coupons, travel vouchers, and even hackey sacks. A handful of state laws forced marketers off-campus but the Credit CARD Act sets even tougher boundaries for lenders. Marketing teams can no longer exchange "tangible goods" for applications collected on campus or at college-sponsored events off-campus. In addition, the Act backs tougher state laws and institutional rules that mandate financial literacy training at colleges that permit on-campus solicitation.

Parental Credit Card Ties Extend Beyond the 21st Birthday

For teens who convince parents or other relatives to co-sign on a student credit card, credit connections last long past graduation day. Stricter guidelines on credit limits could prevent older students with existing accounts from opening additional credit lines, at least until they can provide proof of reliable income. Any changes to credit limits or other terms on student credit card accounts must be approved by both the cardholder and the co-signer, opening up the possibility of awkward conversations and strained relationships well into graduate school. Many industry analysts expect students to wait until after graduation to complete credit applications instead of remaining tied to parental preferences and credit reports.

College Affinity Credit Cards Under Scrutiny

Whether moving back home or into a new dwelling, recent college graduates often discover that their first mail delivery includes a special credit card offer sponsored by an alumni association. Like retail affinity credit cards, these special accounts often feature exclusive discounts and benefits such as athletic event pre-sales. Under new regulations, these applications must clearly state the nature of the relationship between a credit card issuer and a sponsoring institution. Profits earned or donations made under affinity card agreements must also be publicly disclosed in annual reports. Some school officials have already expressed fears that revealing the results of credit card agreements could chill alumni fundraising efforts.

For financially responsible Americans who have not yet reached age 21, February's new rules force some important decisions about credit. Either open up a student credit card now and be grandfathered under the old rules or wait a few years to enjoy the benefits and the buying power of credit cards. It is important to establish a positive credit history during college and student credit cards will likley remain a popular avenue for young adults. Banks remain eager to do business with good students, but must steadfastly enforce the new guidelines on February 22, 2010.

Related article:  Credit CARD Act Guide Part 2: Understanding Rate, Fee, and Clarity Changes

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Related article:  Credit CARD Act Guide Part 4: The Death of Free Checking?

About the Author

arnold

Curtis Arnold, a nationally recognized consumer educator and advocate, has been educating consumers about credit cards since 1998. New! Curtis is the author of "How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line" (FT Press, 2008). He is also the co-author of the upcoming Complete Idiot's Guide to Person-to-Person Lending (Alpha Books/Pengiun Group USA, April 2009), a contribitor to The Ultimate Allowance (InnerWealth Publishing, 2008) and is extensively featured in 42 RulesTM for Driving Success With Books (Super Star Press, January 2009).