The days of being pressured to open a credit card through incentives of free T-shirts or foot-long subs are now over.
Last spring, President Obama signed into law the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act), which went into effect on Monday. This new legislation has established a renovated set of rules for credit card companies to follow, restricting those under the age of 21 from certain terms of credit card usage.
'This CARD Act … is a key part of a number of administration initiatives to increase the protection of consumers, particularly in financial markets and particularly in areas where credit is involved,' said Jared Bernstein, senior economic adviser to the vice president, during a conference call. 'For too long, credit card companies have had free rein to employ misleading and unfair practices that hit consumers with unreasonable costs, often in ways that were shady and very difficult for people to sort out, and they've had a specific, tough impact, in most cases, on younger Americans.'
According to Bernstein, under the CARD Act, those under 21 years of age will now need to demonstrate their ability to make timely and full payments or will need a co-signer in order to open an account. Those younger than 21 who want to increase their credit limit will need an agreement in writing from their co-signer.
The legislation additionally creates extra responsibility on establishments that use their facilities to promote credit cards to a younger demographic. The CARD Act now requires that issuers and institutions disclose all of their agreements regarding marketing or credit card contracts with students.
When universities allow credit card companies to solicit students on campus, they receive a portion of the company's proceeds. In the past, schools were not required to release the dollar amount they were given as a result of this practice, but under this new law, both parties are to give full disclosure of their earnings as well as the details of their promotional agreements.
Additionally, credit card companies are no longer allowed to provide free gifts in exchange for signing up for a card on or near campuses.
'There are two reasons why it's part particularly unfortunate when young people get in over their heads with credit cards. First of all, it's tougher to get your career started on a good foot if you're carrying a large pressing debt burden, but secondly, you can do considerable damage to your credit score and that hurts you moving forward as you begin your career and your life and want to make the kinds of investments that families make as they get older. So we think it is particularly important to make sure these consumer protections reach younger people,' Bernstein said. 'Again, the idea here is to help make sure that responsible practices dominate, especially with younger people, because the costs of getting this wrong are really high.'
The detailed list of new regulations included in the CARD Act is in place to create consumer protection for the younger generation and provide a sort of orientation into the world of credit card usage.
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Photo: Breadchastick / Wikimedia Commons
