By Billy S. Garland
In May of 2009, President Barack Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act, with the intention of stifling what many in Washington, D.C. consider to be unfair rate hikes and hidden fees. As of Monday, Feb. 22 a majority of the provisions included in the act have been put into action. Of these provisions, several are intended to protect students and other young adults from becoming caught in the proverbial credit trap.
“As a student leader, I know that banks are marketing aggressively to students and other young people,” said Tim Mensing, University of Washington student body president, in a televised national press conference on Thursday, Feb. 18. “Students are using credit cards in significant numbers and a significant number of them are paying the price through late fees, high balances and delinquencies. Also, more and more students are using credit cards to pay for their educational costs and even tuition at some times.”
It is true that the number of students using credit cards to pay for college is surprisingly large. According to “How Undergraduate Students Use Credit Cards: Sallie Mae’s National Study of Usage Rates and Trends, 2009,” approximately one-third of college students have put their tuition costs on a credit card, and nearly 92 percent of undergraduate students have used their charge accounts to pay for books, school supplies or other educational expenses.
While the number of students using their cards for college-related expenses is staggering, it is the way that these students obtain their credit cards that has led many legislators and lobbyists to push for reform and regulation of the consumer credit industry.
“While other adults would have to demonstrate some ability to pay, get a higher cost card or a co-signer to get approved, students without income, assets, jobs or credit reports have been issued credit cards virtually automatically,” said Mensing.
This issue is directly addressed by one of the main provisions within the CARD Act. Now that the bill has been put into action, young adults between the ages of 18-21 must be able to show some independent source of income or have a parent to co-sign with them.
A second major provision within the CARD Act will prevent credit card companies, banks and other consumer credit companies from setting up tables on college campuses to recruit students. As one of the main advocates for the act, the U.S. Public Interest Research Group, a nonprofit group out of Washington, has been lobbying for nearly a decade for consumer credit reform. According to a study done by the U.S. PIRG, banks have used these booths to sign up undergraduate students by offering giveaways and incentives. Of the student card-holders polled, nearly 75 percent had been signed up at one of these tables and 31 percent admitted to having received a prize in return.
“CARD is an historic reform that will save consumers millions of dollars in unfair fees and interest because of ‘gotcha’ tricks and traps that the industry began imposing over the past 10 years or so,” said Ed Mierzwinski, U.S. PIRG program director. “From PIRG’s perspective, CARD has hit the big issues for students.”
Some University of Louisville parents, like Jeanne Isaacs, feel that these issues should have been addressed earlier.
“My daughter is old enough now that this bill will not apply to her, but I wish it had been passed when she was younger because it would have saved her a lot of debt,” said Isaacs.
Isaacs said that her daughter has been rebuilding her credit since 2005. At age 20, she was so excited to get approved for credit cards that she applied to different companies just to see if she could approved. She ended up maxing out 11 different cards.
“When people are that young, they really don’t have the self control it takes to have such a financial responsibility to look after,” said Isaacs.
Financial responsibility has become a frequently used phrase in the wake of the recent economic crisis. Supporters of the CARD Act see the issues with the consumer credit industry as central to the issue. Elizabeth Warren, head of the Troubled Asset Relief Program oversight panel, insists that precautions need to be taken.
“Wall Street will always move faster than Congress,” said Warren. “The Wall Street banks hire an army of MBAs and lawyers to set traps in credit cards. Families, in turn, lose billions of dollars through the years before Congress can act. CARD is a good first step, but it isn’t enough alone. The credit card and the entire consumer credit industry are broken.”
Regardless of the dishonesty and cheating on all sides, supporters of the CARD Act continue to hope.
“These changes really are great reforms,” said Mensing. “Hopefully they will make sure that our nation’s economic future—college students—aren’t mortgaging their future.”
The consideration of individual futures under the new CARD Act has left some students worried their ability to build credit in an already tumultuous financial climate.
“I’ve been on my own since I was 16,” said incoming freshman business major Colbi Benson. “And you can’t get anything without credit. And it’s hard to get credit. So how are people supposed even establish themselves now? Obama needs to do something for young people—like start everyone out with a certain amount of credit—so if they are put in a situation like I was then they aren’t totally out of luck.”
