New laws for student credit cards make it more difficult for teens to obtain credit. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD) was introduced to bring about more responsible borrowing and encourage more accountability in debt management.
Since many credit card companies target vulnerable college-aged students, a large portion of CARD outlines new guidelines and stricter requirements for student credit cards.
As of February, 2010, both students and credit card companies must comply with these new rules.
1. Proof of Income and Co-sign Requirement. Under the new law, anyone under the age of 21 must show proof of their ability to repay credit card debt. If they cannot prove sufficient income, they will need to find someone to co-sign on the account. Although this makes parents/guardians legally responsible for their children’s debts, it also allows them to monitor spending. Parents can now make sure that their children have the best credit card for their needs, teach responsible credit management, and help build strong credit scores.
2. Credit Limit Regulations. Until recently, it was not uncommon for students to receive several credit card offers by mail. However, this has now been eliminated since CARD does not allow pre-approved credit limits for student credit cards. Under the new law, students cannot charge more than 20% of their earnings. Additionally, if a co-signer is required, credit card companies are not allowed to increase credit limits without the co-signer’s written permission.
3. No More “Freebies.” In the past, many companies have tried to entice students to open new accounts by offering free rewards such as t-shirts, pizza, or electronics. The new law mandates that credit card companies must now remain a specified distance from college campuses and prohibits them from marketing their products or offering freebies and incentives on school property. CARD also prevents educational institutions from selling students’ names or personal information to credit card companies.
However, while this ban applies to college campuses and college-related events, it does not prevent credit card lenders from setting up at other locations favored by college students.
4. Educational Programs. CARD strongly encourages colleges and universities to require freshmen to attend sessions on credit and debt management. Most students find themselves in financial problems because they do not understand the implications of credit card use and have not been educated in budgeting and responsible spending. The new guidelines suggest that stricter policies accompanied by proper education will reduce debt among young cardholders.
Return to Top of New Laws for Student Credit Cards