Credit Card Regulation Only a Week Away

After what has felt like an eternity, the Credit CARD Act of 2009 finally comes fully into force (except for certain provisions that affect gift cards) on February 22. And few will breathe a bigger sigh of relief than parents whose children have student credit cards.

That’s because credit card companies long ago began to direct their slick marketing techniques toward those on college campuses. Of course, they saw all youngsters as potential new customers who could remain loyal credit card users for decades. But students were particularly valuable because college graduates are more likely than most to be both affluent and, consequently, good credit risks.

Credit Card Companies on Campus

Back at the end of 2008, the New York Times investigated some of the methods that card issuers used to target students. Perhaps the most surprising fact uncovered in the subsequent report was that hundreds of colleges across the country had signed agreements with card companies. In fact, Bank of America alone had 700 such deals in place at that time.

Many contracts contained confidentiality clauses, so their details remain unknown. But the Times found that one university received a dollar for every successful credit card application (as long as the account wasn’t closed within 90 days), three dollars for each card with an annual fee, and half-a-percent of all the retail purchases made using cards that fell within the deal.

The Times quoted a student newspaper editorial from a different university: “…it doesn’t take a giant leap for someone to ask why the university should encourage responsible spending when it receives a cut of every purchase.”

New Protections

As of next week, the new credit card regulations sweep away these cozy deals, along with the ubiquitous tents, and stands that credit card companies used to erect on campuses. Gone too willbe the T-shirts, blankets, sandwich vouchers, and other promotional goodies that card issuers used to exchange for completed credit card applications.

Because the Credit CARD Act not only outlaws these, but also makes it illegal to issue a card to anyone under 21-years old who does not have independent means unless their parent, guardian, or another adult co-signs the agreement. Even then, the adult will have to give written permission before the credit limit on the card can be raised.

Giving Leverage to Parents

This provides parents with some much-needed leverage when protecting their offspring from unmanageable credit card debt. And if those parents believe that their child is unable to take responsibility for a credit card at all, then it allows them to insist that the student use only cash, or a combination of cash and a debit card.

Of course, there are real advantages to having cards for those who can manage them responsibly. Part of one’s credit score is based on the length of one’s credit history. So, for example, college graduates who haven’t had a card could pay more for, say, a car loan when they’re 23 or 24 years old. They might even be declined completely.

Credit Cards and the Young

It’s generally a mistake to see credit cards as instruments of the devil and credit card companies as invariably evil. In the modern world, it can be tough to get by without a card, and many students learn very successfully how to manage their finances during their college years.

But few will mourn the passing of the years that saw credit card issuers regarding campuses in much the same way that the cowboys wearing black hats used to view small, wild west towns. And most parents welcome the opportunity to participate more actively, and (if they have any sense) more constructively in their children’s financial lives.

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