New law aims to protect college-aged credit card customers

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New credit card rules went to effect Monday that include both protections and restrictions for college-aged Americans.

The sweeping new legislation, called the Credit Card Accountability, Responsibility and Disclosure Act, is a key part of a number of initiatives by the Obama administration to increase the protection of consumers – particularly in financial markets that were badly hit by the recession.

“We got into this mess because consumers often took on more debt than they could handle,” said Jared Burnstein, senior economic adviser to Vice President Joe Biden, in a conference call with college reporters Feb 23.

“The major reforms of the CARD Act mark a significant turning point in precisely that area – helping to protect consumers from unfair practices that helped us get into the hole we are in,” he added.

The CARD Act comes at an opportune moment for young adults who have been the target of aggressive card solicitations and misleading contract terms, . Provisions of the law include those that prohibit unfair interest rates and fees.

New provisions also require individuals under 21 to demonstrate financial capability to qualify for a credit card. Those without sufficient income require a co-signer – parent or guardian – to become eligible.

But being a co-signer does have its share of responsibilities.

“Co-signers must be aware of the liabilities they are undertaking,” Burnstein said. “If the credit card holder goes into default, the co-signer can’t get off the hook short of paying off the loan.”

Consumers can now expect clear “rules of the road,” which prohibit the use of small font and hidden texts on billing statements. Monthly statements will also warn cardholders about how long it will take them to pay off their balances if they only make the minimum payments.

The CARD Act also represents a major shift in the way credit card companies can do business on college campuses.

“Giving away free merchandise like t-shirts and water bottles in exchange for signing up for a credit card is now banned,” Burnstein said. “Schools often receive a cut of those proceeds. Educational institutions and companies must now disclose how much money they make from credit card promotions,” he said.

Burnstein urged consumers to visit the government portal www.helpwithmybank.gov where people can report whether financial institutions are obeying the laws of fair practice.

“Transparency lies at the core of this new policy – we’re getting away from the seventeen pages of tiny font that nobody, whether you have a law degree or a Ph.D., could possibly understand.”

A recent study by Sallie Mae, an organization that provides loans for students, found that the average undergraduate carried $3,173 in credit card debt last year, the highest level since the college-financing company began collecting data in 1998.

“For too long, credit card companies have had free reign to employ misleading practices that hit consumers with unfair costs that were shady and difficult for people to get out of,” Burnstein said. “It is particularly troubling for college graduates to get their career started on the right foot if they carry massive debt.”

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